U.S.

$30,000,000,000
Republic of Indonesia
Global Medium Term Note Program
Under this U.S.$30,000,000,000 Global Medium Term Note Program (the Program), the Republic of Indonesia (the Republic or Indonesia),
subject to compliance with all relevant laws, regulations and directives, may, from time to time, issue notes in bearer or registered form (the Notes).
The maximum aggregate principal amount of all Notes from time to time outstanding under the Program will not exceed U.S.$30,000,000,000
(or its equivalent in other currencies determined at the time of the agreement to issue), subject to any duly authorized increase. The Notes may be
denominated in U.S. dollars, Euros and such other currencies as may be agreed between the Republic and the relevant Dealers (as defined below).
The Notes may be issued on a continuing basis to the Dealers and any additional Dealer(s) appointed under the Program from time to time
pursuant to the terms of a Program Agreement dated January 28, 2009 (as the same may be amended from time to time, the Program Agreement),
which appointment may be for a specific issue or on an ongoing basis (each, a Dealer and, together, the Dealers). References in this Offering
Circular to the relevant Dealer, in the case of an issue of Notes being (or intended to be) subscribed by more than one Dealer, shall be to all Dealers
agreeing to subscribe for such Notes.
Notes will be issued in Series (each, a Series), with all Notes in a Series having the same maturity date and terms otherwise identical (except in
relation to issue dates, interest commencement dates, issue prices and related matters). Notes in each Series may be issued in one or more tranches
(each, a Tranche) on different issue dates. Details applicable to each particular Series or Tranche will be supplied in a pricing supplement to this
Offering Circular (each, a Pricing Supplement), which will contain the aggregate principal amount of the Notes, interest (if any) payable in respect
of Notes, the issue price of Notes and any other terms and conditions not contained herein which are applicable to each Tranche. This Offering
Circular may not be used to consummate sales of Notes unless accompanied by a Pricing Supplement.
The price and amount of Notes to be issued under the Program will be determined by the Republic and the relevant Dealer at the time of issue in
accordance with prevailing market conditions.
Application will be made to the Singapore Exchange Securities Trading Limited (the SGX-ST) for permission to deal in and quotation of any
Notes that may be issued pursuant to the Program and which are agreed at or prior to the time of issue thereof to be so listed on the SGX-ST. The
SGX-ST assumes no responsibility for the correctness of any of the statements made or opinions expressed or reports contained herein. The approval
in-principle from, and the admission of any Notes to the Official List of, the SGX-ST are not to be taken as an indication of the merits of the
Republic, the Program or the Notes. Unlisted Notes may be issued under the Program. The relevant Pricing Supplement in respect of any Series will
specify whether or not such Notes will be listed and, if so, on which exchange(s) the Notes are to be listed. There is no assurance that the application
to the Official List of the SGX-ST for the listing of the Notes of any Series will be approved.
Notes of each Series to be issued in bearer form (Bearer Notes) will initially be represented by interests in a temporary global Note or by a
permanent global Note, in either case in bearer form (each a Temporary Global Note and a Permanent Global Note, respectively), without interest
coupons, which may be deposited on the relevant date of issue (the Issue Date) with a common depositary on behalf of Clearstream Banking, socit
anonyme (Clearstream) and Euroclear Bank S.A./N.V. (Euroclear) (the Common Depositary) or any other agreed clearance system compatible
with Euroclear and Clearstream and will be sold in an offshore transaction within the meaning of Regulation S (Regulation S) under the United
States Securities Act of 1933, as amended (the Securities Act). The provisions governing the exchange of interests in Temporary Global Notes and
Permanent Global Notes (each, a Bearer Global Note) for other Bearer Global Notes and individual definitive Bearer Notes (Definitive Bearer
Notes) are described in Forms of the Notes. Definitive Bearer Notes will only be available in the limited circumstances as described herein.
Notes of each Series to be issued in registered form (Registered Notes) sold in an offshore transaction will initially be represented by interests in
a global unrestricted Note, without interest coupons (each an Unrestricted Global Security), which may be deposited on the relevant issue date
(i) with the Common Depositary, (ii) with a custodian for, and registered in the name of a nominee of, The Depository Trust Company (DTC) or
(iii) as otherwise specified in the applicable Pricing Supplement. Beneficial interests in an Unrestricted Global Security will be shown on, and
transfers thereof will be effected only through, records maintained by, Euroclear or Clearstream, DTC or as otherwise specified in the applicable
Pricing Supplement. Notes of each Series sold to a qualified institutional buyer (QIB) within the meaning of Rule 144A under the Securities Act
(Rule 144A), as referred to in Subscription and Sale, and subject to the transfer restrictions described in Notice to Purchasers and Holders of
Notes and Transfer Restrictions, will initially be represented by interests in a global restricted Note, without interest coupons (each a Restricted
Global Security and together with any Unrestricted Global Security, the Registered Global Securities), which may be deposited on the relevant
issue date (i) with the Common Depositary, (ii) with a custodian for, and registered in the name of a nominee of DTC or (iii) as otherwise specified in
the applicable Pricing Supplement. Beneficial interests in a Restricted Global Security will be shown on, and transfers thereof will be effected only
through, records maintained by Euroclear or Clearstream, DTC and its participants or as otherwise specified in the applicable Pricing Supplement.
See Global Clearance and Settlement Systems.
Notes in definitive registered form will be represented by registered certificates (each, a Certificated Security), one Certificated Security being
issued in respect of each Holders entire holding of Notes of one Series and will only be available in the limited circumstances as described herein.
The Notes have not been and will not be registered under the Securities Act or with any securities regulatory authority of any state or other
jurisdiction and the Notes may include Bearer Notes that are subject to U.S. tax law requirements. Subject to certain exceptions, the Notes may not be
offered, sold or (in the case of Bearer Notes) delivered within the United States or (in the case of Bearer Notes) to, or for the account or benefit of,
U.S. persons (as defined in the U.S. Internal Revenue Code of 1986, as amended (the Internal Revenue Code)). Prospective purchasers are hereby
notified that sellers of Notes may be relying on the exemption from the provisions of Section 5 of the Securities Act provided by Rule 144A. See
Notice to Purchasers and Holders of Notes and Transfer Restrictions.

Arrangers
CITIGROUP HSBC STANDARD CHARTERED BANK
Dealers
BofA MERRILL LYNCH CITIGROUP DEUTSCHE BANK
GOLDMAN SACHS (SINGAPORE) PTE. HSBC J.P. MORGAN
SOCIT GNRALE STANDARD CHARTERED BANK
CORPORATE & INVESTMENT BANKING
The date of this Offering Circular is January 8, 2015
Republic of Indonesia
 TABLE OF CONTENTS

Page

Presentation of Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Forward-Looking Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Data Dissemination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Enforcement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Certain Defined Terms and Conventions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Republic of Indonesia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Description of the Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 215
Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 240
Forms of the Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 241
Form of Pricing Supplement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 243
Global Clearance and Settlement Systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 250
Notice to Purchasers and Holders of Notes and Transfer Restrictions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 255
Taxation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 259
Subscription and Sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 271
General Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 276

i
 The Notes have not been and will not be registered under the Securities Act, or any state securities laws, or
under the securities laws of any other jurisdiction. The Notes may include Bearer Notes that are subject to
U.S. tax law requirements. Subject to certain exceptions, the Notes may not be offered or sold or (in the case of
Bearer Notes) delivered within the United States or (in the case of Bearer Notes) to, or for the account or benefit
of, U.S. persons (as defined in the Internal Revenue Code). See Subscription and Sale. This Offering Circular
has been prepared by the Republic for use in connection with the offer and sale of Notes outside the
United States in reliance upon Regulation S and with respect to the Notes in registered form only, within the
United States (i) to QIBs in reliance upon and as defined in Rule 144A or (ii) to a limited number of Institutional
Accredited Investors pursuant to and as defined in Section 4(a)(2) of the Securities Act, or (iii) in transactions
otherwise exempt from registration. Prospective purchasers are hereby notified that sellers of Notes may be
relying on the exemption from the provisions of Section 5 of the Securities Act provided by Rule 144A. For a
description of certain restrictions on transfer of the Notes, see Notice to Purchasers and Holders of Notes and
Transfer Restrictions and Subscription and Sale.

Purchasers of 4(a)(2) Notes will be required to execute and deliver an investor representation letter. Each
purchaser or holder of 4(a)(2) Notes, Notes represented by a Restricted Global Security or any Notes issued in
registered form in exchange or substitution therefor will be deemed, by its acceptance or purchase of any such
Notes, to have made certain representations and agreements intended to restrict the resale or other transfer of
such Notes as set out in Subscription and Sale Selling Restrictions. Unless otherwise stated, terms used in
this paragraph have the meanings given to them in Forms of the Notes.

Copies of each Pricing Supplement will be available from the office of the Ministry of Finance and from the
specified office of the Paying Agent in Singapore.

The Republic has agreed to comply with any undertakings given by it from time to time to the SGX-ST in
connection with Notes in a Series to be listed on the SGX-ST and, without prejudice to the generality of the
foregoing, shall in connection with the listing of the Notes on the SGX-ST or any other relevant stock exchange,
so long as any Note remains outstanding, prepare a supplement to this Offering Circular, or, as the case may be,
publish in a new Offering Circular, whenever required by the rules of the SGX-ST or any other relevant stock
exchange and in any event (i) if the maximum aggregate principal amount of Notes that may be issued under the
Program is increased, (ii) upon the Republic becoming aware that (A) there has been a significant change
(including any change to the Description of the Notes in a Series to be listed on the SGX-ST) affecting any
matter contained in this Offering Circular or (B) a significant new matter has arisen, the inclusion of information
in respect of which would have been required to be in this Offering Circular if it had arisen before this Offering
Circular was issued or (iii) if the terms of the Program are modified or amended in a manner which would make
this Offering Circular, as supplemented, materially inaccurate or misleading. In the event that a supplement to
this Offering Circular is produced pursuant to such undertakings, a copy of such supplement will accompany this
Offering Circular. Any such supplement to this Offering Circular will also be available from the specified office
of the Paying Agent in Singapore. See General Information Documents on Display.

The Dealers have not independently verified the information contained herein. Accordingly, no
representation, warranty or undertaking, express or implied, is made and no responsibility or liability is accepted
by the Dealers as to the accuracy or completeness of the information contained in or incorporated by reference to
this Offering Circular or any other information provided by the Republic or any other person in connection with
the Program or the Notes or their distribution. No Dealer accepts any liability in relation to the information
contained or incorporated by reference to this Offering Circular or any other information provided by the
Republic in connection with the Program. The statements made in this paragraph are made without prejudice to
the responsibility of the Republic under the Program.

No person is or has been authorized to give any information or to make any representation not contained in
or not consistent with this Offering Circular, the Program Agreement or any other information supplied in
connection with the Program or the Notes and, if given or made, such information or representation must not be
relied upon as having been authorized by the Republic or any of the Dealers.

Neither this Offering Circular nor any other information supplied in connection with the Program or any
Notes (i) is intended to provide the basis of any credit or other evaluation or (ii) should be considered as a
recommendation or constituting an offer by the Republic or any of the Dealers that any recipient of this Offering
Circular or any other information supplied in connection with the Program or any Notes should purchase any
Notes in any jurisdiction where it is unlawful for such person to make such a recommendation or offer. Each
investor contemplating purchasing any Notes should make its own independent investigation of the financial

ii
condition and affairs and its own appraisal of the creditworthiness of the Republic. Neither this Offering Circular
nor any other information supplied in connection with the Program or any Notes constitutes an offer or invitation
by or on behalf of the Republic or any of the Dealers to any person to whom it is unlawful to make such offer to
subscribe for or to purchase any Notes.

Neither the delivery of this Offering Circular nor the offering, sale or delivery of any Notes shall in any
circumstance imply that the information contained herein concerning the Republic is correct at any time
subsequent to the date hereof or the date as of which it is expressed to be given or that any other information
supplied in connection with the Program is correct as of any time subsequent to the date indicated in the
document containing the same. The Dealers expressly do not undertake to review the financial condition or
affairs of the Republic during the life of the Program.

The distribution of this Offering Circular and the offer or sale of Notes may be restricted by law in certain
jurisdictions. Neither the Republic nor any of the Dealers represents that this Offering Circular may be lawfully
distributed, or that any Notes may be lawfully offered, in compliance with any applicable registration or other
requirements in any such jurisdiction, or pursuant to an exemption available thereunder, or assume any
responsibility for facilitating any such distribution or offering. In particular, no action has been taken by the
Republic or the Dealers which would permit a public offering of any Notes or distribution of this Offering
Circular in any jurisdiction where action for that purpose is required. Accordingly, no Notes may be offered or
sold, directly or indirectly, and neither this Offering Circular nor any advertisement or other offering material
may be distributed or published in any jurisdiction, except under circumstances that will result in compliance
with any applicable laws and regulations and the Dealers have represented that all offers and sales by them will
be made on the same terms. Persons into whose possession this Offering Circular or any Notes come must inform
themselves about and observe any such restrictions. In particular, there are restrictions on the distribution of this
Offering Circular and the offer or sale of Notes in the United States, the European Economic Area, the United
Kingdom, Singapore, Hong Kong and Japan. For a description of these and certain further restrictions on offers
and sales of the Notes and distribution of this Offering Circular, see Subscription and Sale and Notice to
Purchasers and Holders of Notes and Transfer Restrictions below.

The Notes have not been registered with, recommended by or approved or disapproved by the United States
Securities and Exchange Commission (the SEC) or any other federal or state securities commission in the
United States nor has the SEC or any other federal or state securities commission confirmed the accuracy or
determined the adequacy of this Offering Circular. Any representation to the contrary is a criminal offense in the
United States. The Notes are subject to restrictions on transferability and resale and may not be transferred or
resold except as permitted under applicable federal or state securities laws pursuant to a registration statement or
an exemption from registration. See Subscription and Sale and Notice to Purchasers and Holders of Notes
and Transfer Restrictions below. Investors should be aware that they may be required to bear the financial risks
of this investment for an indefinite period of time.

In making an investment decision regarding the Notes, prospective investors must rely on their own
examination of the Republic and the terms of the Program, including the merits and risks involved. None of the
Dealers or the Republic makes any representation to any investor in the Notes regarding the legality of its
investment under any applicable laws. Any investor in the Notes should be able to bear the economic risk of an
investment in the Notes for an indefinite period.

RESPONSIBILITY STATEMENT

The Republic accepts responsibility for the information contained in this Offering Circular. Having taken all
reasonable care to ensure that such is the case, the information contained in this Offering Circular is, to the best
of the knowledge and belief of the Republic, in accordance with the facts and contains no omission likely to
affect the import of such information.

IN CONNECTION WITH THE ISSUE OF NOTES IN ANY SERIES OR TRANCHE UNDER THE
PROGRAM, THE DEALER OR DEALERS (IF ANY) NAMED AS THE STABILIZING MANAGER(S)
(EACH, A STABILIZING MANAGER) (OR PERSONS ACTING ON BEHALF OF ANY
STABILIZING MANAGER(S)) IN THE APPLICABLE PRICING SUPPLEMENT MAY OVER-ALLOT
NOTES OR EFFECT TRANSACTIONS WITH A VIEW TO SUPPORTING THE MARKET PRICE OF
THE NOTES IN SUCH A SERIES AT A LEVEL HIGHER THAN THAT WHICH MIGHT
OTHERWISE PREVAIL. HOWEVER, THERE IS NO ASSURANCE THAT THE STABILIZING

iii
MANAGER (OR PERSONS ACTING ON BEHALF OF A STABILIZING MANAGER) WILL
UNDERTAKE STABILIZATION ACTION. ANY STABILIZATION WILL BE CONDUCTED IN
ACCORDANCE WITH ALL APPLICABLE LAWS AND REGULATIONS. SEE SUBSCRIPTION AND
SALE.

NOTICE TO NEW HAMPSHIRE RESIDENTS

NEITHER THE FACT THAT A REGISTRATION STATEMENT OR AN APPLICATION FOR A

LICENSE HAS BEEN FILED UNDER CHAPTER 421-B OF THE NEW HAMPSHIRE REVISED STATUTES
ANNOTATED, 1955, AS AMENDED (RSA), WITH THE STATE OF NEW HAMPSHIRE NOR THE FACT
THAT A SECURITY IS EFFECTIVELY REGISTERED OR A PERSON IS LICENSED IN THE STATE OF
NEW HAMPSHIRE CONSTITUTES A FINDING BY THE SECRETARY OF STATE OF NEW HAMPSHIRE
THAT ANY DOCUMENT FILED UNDER SUCH RSA CHAPTER 421-B IS TRUE, COMPLETE AND NOT
MISLEADING. NEITHER ANY SUCH FACT NOR THE FACT THAT AN EXEMPTION OR EXCEPTION
IS AVAILABLE FOR A SECURITY OR A TRANSACTION MEANS THAT THE SECRETARY OF STATE
OF NEW HAMPSHIRE HAS PASSED IN ANY WAY UPON THE MERITS OR QUALIFICATIONS OF, OR
RECOMMENDED OR GIVEN APPROVAL TO, ANY PERSON, SECURITY, OR TRANSACTION. IT IS
UNLAWFUL TO MAKE, OR CAUSE TO BE MADE, TO ANY PROSPECTIVE PURCHASER, CUSTOMER,
OR CLIENT ANY REPRESENTATION INCONSISTENT WITH THE PROVISIONS OF THIS
PARAGRAPH.

iv
 PRESENTATION OF INFORMATION

Unless otherwise indicated, all references in this Offering Circular to rupiah or Rp are to the currency of
Indonesia, those to dollars, U.S. dollars or U.S.$ are to the currency of the United States of America, those
to Euro or are to the currency of the European Union, those to SDR are to Special Drawing Rights of the
International Monetary Fund (IMF) and those to ID are to Islamic Dinars of the Islamic Development Bank.
References in this document to Indonesia or the Republic are to the Republic of Indonesia and references to
the Government are to the Government of Indonesia.

For ease of presentation, certain financial information relating to the Republic included herein is presented
as translated into U.S. dollars. Unless otherwise specified herein, all translations of rupiah into U.S. dollars or
from U.S. dollars into rupiah were made at the middle exchange rate, the mid-point between the buy and sell rate
(the BI middle exchange rate), between the rupiah and the U.S. dollar, as announced by Bank Indonesia, the
Indonesian Central Bank, as of the respective dates to which such information relates. However, these
translations should not be construed as a representation that the rupiah amount actually represents such
U.S. dollar amount or could be converted into U.S. dollars at the rate indicated or any other rate. The BI middle
exchange rate was Rp12,440 = U.S.$1 on December 31, 2014. In addition, unless otherwise specified herein, all
translations of rupiah into currencies other than U.S. dollars, or from such other currencies into rupiah, were
made at the BI middle exchange rate between the rupiah and such other currencies as announced by Bank
Indonesia as of the respective dates to which such information relates.

The following table sets forth information on exchange rates between the rupiah and certain other currencies
as of the end of the periods indicated.

Exchange Rates

Rupiah
Rupiah per 100 Rupiah per
per U.S. Japanese Rupiah Singapore
dollar yen per Euro dollar

2009 ..................................................... 9,400 10,170 13,510 6,698

2010 ..................................................... 8,991 11,028 11,956 6,981
2011 ..................................................... 9,068 11,680 11,739 6,974
2012 ..................................................... 9,670 11,197 12,810 7,907
2013 ..................................................... 12,189 11,617 16,821 9,628
2014
January 1 - March 31 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,404 11,165 15,674 9,050
April 1 - June 30 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,969 11,815 16,333 9,582
July 1 - September 30 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,212 11,170 15,495 9,585
October 1 - December 31 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,440 10,424 15,133 9,422
Source: Bank Indonesia

Unless otherwise indicated, all statistical data and figures for 2014 and 2015 or any part thereof are
estimates based upon preliminary data and are subject to review and adjustment. Specifically, all GDP,
GDP-related and GDP-derived statistical data and figures for 2014 and 2015 are preliminary and subject to
further review and adjustment. Final GDP, GDP-related and GDP-derived data and figures for each of 2014 and
2015 will not be announced by the Badan Pusat Statistik (BPS) until the BPS publicly announces detailed
preliminary GDP statistical data and figures for the full year of each of 2016 and 2017, respectively.

Certain budget figures appear as audited numbers in the relevant years Central Government Financial
Report (Laporan Keuangan Pemerintah Pusat, or LKPP).

Certain statistical or financial information included in this Offering Circular may differ from previously
published information for a number of reasons, including continuing implementation of a debt management
system, consultation with the IMF and ongoing statistical revisions. Also, certain monetary amounts included in
this Offering Circular have been subject to rounding adjustments. Accordingly, figures shown as totals in certain
tables may not be an exact arithmetic aggregation of the figures that precede them.

1
 FORWARD-LOOKING STATEMENTS

Some of the statements contained in this Offering Circular constitute forward-looking statements.
Statements that are not historical facts are forward-looking statements. Forward-looking statements generally can
be identified by the use of forward-looking terminology such as may, will, expect, intend, estimate,
anticipate, believe, target, continue or similar terminology. Among other things, Indonesias economy,
fiscal condition, debt or prospects may constitute forward-looking statements. These statements are based on the
Governments current plans, objectives, assumptions, estimates and projections. Forward-looking statements
speak only as of the date that they are made and involve inherent risks and uncertainties. Each of the Republic
and the Dealers expressly disclaims any obligation or undertaking to release, publicly or otherwise, any updates
or revisions to any forward-looking statements contained herein to reflect any change in the Republics
expectations with regard thereto or any change in events, conditions, assumptions or circumstances on which any
such statement was based. The Republic cautions that a number of important factors could cause actual results to
differ materially from those contained in any forward-looking statement. Therefore, undue reliance should not be
placed on them.

DATA DISSEMINATION

Indonesia subscribes to the IMFs Special Data Dissemination Standard, which is designed to improve the
timeliness and quality of information of subscribing member countries. This standard requires subscribing
member countries to provide schedules, referred to as the Advance Release Calendar, indicating, in advance,
the date on which data will be released. For Indonesia, precise dates or no-later-than-dates for the release of
data are disseminated three months in advance through the Advance Release Calendar, which is published on the
Internet under the IMFs Dissemination Standards Bulletin Board. Summary methodologies of all metadata to
enhance transparency of statistical compilation are also provided on the Internet under the IMFs Dissemination
Standards Bulletin Board. The internet website for Indonesias Advance Release Calendar and metadata is
located at http://dsbb.imf.org/Pages/SDDS/ARCCtyCtgList.aspx?ctycode=IDN.

ENFORCEMENT

The Republic is a sovereign nation. Consequently, it may be difficult for holders of Notes to obtain or
enforce judgments against the Republic. The Republic has irrevocably waived, to the fullest extent permitted by
law, any immunity, including foreign sovereign immunity, from jurisdictions in which it might otherwise be
entitled, in any action arising out of or in relation to the Notes, which may be instituted by the Trustee (as defined
herein) or a holder of any Notes in any federal court in the Southern District of New York, any state court in the
Borough of Manhattan, the City of New York, or in any competent court in Indonesia.

The Republics waiver of immunity is a limited and specific waiver for the purposes of the Notes and the
Indenture (as defined herein) and under no circumstances should it be interpreted as a general waiver by the
Republic or a waiver with respect to proceedings unrelated to the Notes or the Indenture. Furthermore, the
Republic specifically does not waive any immunity in respect of:
actions brought against the Republic arising out of or based upon U.S. federal or state securities laws;
attachment under Indonesian law;
present or future premises of the mission as defined in the Vienna Convention on Diplomatic Relations
signed in 1961;
consular premises as defined in the Vienna Convention on Consular Relations signed in 1963;
any other property or assets used solely or mainly for governmental or public purposes in the Republic
or elsewhere; and
military property or military assets or property or assets of the Republic related thereto.

Because the Republic has not submitted to jurisdiction or waived its sovereign immunity in connection with
any action arising out of or based on United States federal or state securities laws, it will not be possible to obtain
a judgment in the United States against the Republic based on such laws unless a court were to determine that the
Republic is not entitled to sovereign immunity under the U.S. Foreign Sovereign Immunities Act of 1976 (the
Immunities Act) with respect to such actions. The Republic may assert immunity to such actions or with respect

2
to the property or assets described above. Investors may have difficulty making any claims based upon such
securities laws or enforcing judgments against the property or assets described above.

The Republic has appointed the Representative Office of Bank Indonesia in the City of New York as its
authorized agent upon whom process may be served in any action arising out of or based on the Notes. Such
appointment is irrevocable until all amounts in respect of the principal and interest, due or to become due on or in
respect of the Notes issuable under the Program, have been paid by the Republic to the Trustee or unless and
until a successor has been appointed as the Republics authorized agent and such successor has accepted such
appointment. The Republic has agreed that it will at all times maintain an authorized agent to receive such
service, as provided above. The Representative Office of Bank Indonesia is not the agent for receipt of service of
process for actions under the United States federal or state securities laws.

The Republic is subject to suit in competent courts in Indonesia. However, the Law on State Treasury (Law
No. 1 of 2004, dated January 14, 2004) prohibits the seizure or attachment of property or assets owned by the
Republic. Furthermore, a judgment of a non-Indonesian court will not be enforceable by the courts of Indonesia,
although such a judgment may be admissible as evidence in a proceeding on the underlying claim in an
Indonesian court. Re-examination of the underlying claim de novo would be required before the Indonesian
court.

CERTAIN DEFINED TERMS AND CONVENTIONS

Unless otherwise indicated, all references in this Offering Circular to (i) tons are to metric tons, each of
which is equal to 1,000 kilograms or approximately 2,204.6 pounds, (ii) barrels are to U.S. barrels, each of
which is equal to 159.0 liters, (iii) LNG are to liquefied natural gas and (iv) LPG are to liquefied petroleum
gas. Measures of distance referred to herein are stated in kilometers, each of which is equal to 1,000 meters or
approximately 0.62 miles. Measures of area referred to herein are stated in square kilometers, each of which is
equal to approximately 0.39 square miles, or in hectares, each of which is equal to approximately 2.47 acres.

Unless otherwise specified herein, information relating to oil prices in this Offering Circular is based on the
daily basket price in U.S. dollars per barrel announced by the Organization of Petroleum Exporting Countries
(OPEC).

The Governments Ministry of Energy and Mineral Resources publishes an average monthly and annual
price for Indonesian crude oil which is commonly referred to as the Indonesian Crude Price (the ICP). Since July
2007, the Department of Oil and Gas of the Ministry of Energy and Mineral Resources has calculated the ICP as
the sum of (i) 50.0% of the average price for Indonesian crude oil published by Platts, a division of The
McGraw-Hill Companies, and (ii) 50.0% of a crude oil price for Indonesian crude oil published by RIM
Intelligence Co. of Japan for the relevant period. The Government evaluates the methodology of the calculation
of the ICP from time to time and, if appropriate, adjusts the formula to ensure that the ICP closely tracks world
market prices for Indonesian crude oil. The Government uses the ICP for various accounting and other purposes.
For instance, the Ministry of Finance uses the ICP as an assumption underlying the preparation of the
government budget. See Republic of Indonesia Government Budget.

Statistical information included in this Offering Circular is the latest official data publicly available at the
date of this Offering Circular. Financial data provided in this Offering Circular may be subsequently revised in
accordance with Indonesias ongoing maintenance of its economic data. The Republic has no obligation to
distribute such revised data to any holder of Notes.

In August 2014, the Republic revised its methodology in compiling balance of payments data, using the
sixth edition of Balance of Payments and International Investment Position Manual (BPM6). This revised
methodology was implemented to comply with international best practices. BPM6 will be implemented gradually
in Indonesias BOP statistics. The first phase of implementation, which began in the second quarter of 2014,
involves reclassifying existing data components and improving the methodology in accordance with BPM6,
using sources of data currently available.

The shift to the new methodology impacts the following data:

In the goods account, the changes include: (a) reclassifying goods for processing as manufacturing
services on physical inputs owned by others and repairs on goods as maintenance and repair
services in the services account; and (b) incorporating only goods procured in ports by carriers and
general merchandise on a balance of payments basis.

3
 In the services account, the changes include: (a) combining information and computer services and
communication services (excluding postal and couriers) into telecommunication, computer and
information services; (b) reclassifying postal and couriers services to transportation services; and
(c) incorporating the financial intermediation services section into indirectly measured estimates
(FISIM).
The income account and current transfers account are renamed the primary income account and
secondary income account, respectively, to comply with the terms used in the System of National
Accounts 2008 and adjustments were made to the accounts after the implementation of FISIM.
In the financial account, the changes include: (a) the presentation format of direct investment data,
which was previously based on the directional principle of investment (direct investments abroad and
foreign direct investments in Indonesia) that was based on the principle of assets-liabilities (direct
investments asset and direct investments liability). Notwithstanding the change, the net value
of direct investments according to BPM6 is the same as that in the fifth edition of Balance of Payments
and International Investment Program Manual; and (b) including financial derivative data as an
independent component, which is consistent with the information displayed by Indonesias
International Investment Position Statistics.
In the current account, the changes include: (a) the calculation of several indicators associated with the
account; (b) reclassifying goods for processing from goods to services; and (c) recording net values
instead of gross values. While the changes resulted in smaller values of imports of goods and services
and current account receipts, and larger values of indicators for reserve adequacy and the debt service
ratio, the level of the current account remains unchanged from the previous methodology.

The shift to the new methodology does not affect the net errors and omissions, total balance, and
reserves and related items values in the current and financial accounts.

In May 2009, Bank Indonesia modified the major commodity classification system of exports. This
modification was conducted in order to adapt to the implementation of Harmonized System 2007 (HS 2007) and
to reconcile discrepancies with BPS trade data. As a result of this change, the classification of certain export
products has changed. For example, exports of certain processed tobacco products were reclassified from exports
of agricultural products to exports of manufactured products. Revisions to data following classification changes
based on HS 2007 were carried out for 2007 and later data, while revisions to 2006 data were based on
Harmonized System 2004. See Republic of Indonesia Foreign Trade and Balance of Payments.

In 2004, BPS, the government agency that compiles statistics regarding the Indonesian economy, adopted
the calendar year 2000 as the base year (the Base Year) for the calculation of Indonesias Gross Domestic
Product (GDP) in both current and constant market prices. All GDP growth rates in this Offering Circular (in
aggregate or by sector) and percentage shares of Indonesias GDP represented by various sectors (unless
otherwise noted) are based on constant market prices using the Base Year, which the Republic refers to as real
GDP.

4
 SUMMARY

This summary must be read as an introduction to this Offering Circular and any decision to invest in the
Notes should be based on a consideration of this Offering Circular as a whole, including any documents
incorporated by reference.

Overview
Indonesia, the fourth most populous country in the world with a population of approximately 248.8 million
as of June 2014, is a developing nation in Southeast Asia spread across an archipelago of 17,504 islands.
Indonesia is undergoing rapid economic change and has also undergone fundamental political changes,
transforming from what was once a centralized, authoritarian system to a participatory democracy that places
greater political power in the hands of local and regional governments.

The following table sets forth certain of the Republics principal economic indicators as of and for the
specified dates and periods. Growth in real GDP and inflation (measured by changes in the Consumer Price
Index (CPI)) are indicated on a year-on-year basis.

Selected Key Economic Indicators

Nine months
ended Year ended
Year ended December 31, September 30, December 31,
2009 2010 2011 2012 2013 2014R 2014 2015B
National account and prices:
Real GDP growth . . . . . . 4.6% 6.2% 6.5% 6.2% 5.8% 5.5% 5.0%(3) 5.8%
Per capita GDP
(in thousands of
Rupiah) . . . . . . . . . . . . 23,880 27,028 30,795 33,748 36,508 N/A N/A N/A
Per capita GDP
(in U.S. dollars)(1) . . . . 2,347 3,004 3,541 3,606 3,803 N/A N/A N/A
Average exchange rate
(Rupiah per
U.S. dollar)(2) . . . . . . . . 10,380 9,080 8,768 9,358 10,445 11,600 11,770(4) 11,900
Inflation rate
(change in CPI) . . . . . . 2.8% 7.0% 3.8% 4.3% 8.4% 5.3% 4.5%(5) 4.4%
External sector:
Current account
(% of GDP) . . . . . . . . . 2.0% 0.7% 0.2% (2.8)% (3.3)% N/A (3.1)% N/A
Fiscal account:
Budget surplus/(deficit)
(% of GDP) . . . . . . . . . (1.6)% (0.7)% (1.1)% (1.9)% (2.2)% (2.4)% (1.5)% 2.2%
External debt of the
central Government
(in trillions of
Rupiah) . . . . . . . . . . . . 817 775 777 849 1,108 N/A 1,132 N/A
Debt service ratio
(% of government
revenue) . . . . . . . . . . . 24.3% 21.0% 18.8% 19.2% 19.1% N/A 24.4% N/A
Sources: BPS, Bank Indonesia and Ministry of Finance
B Projected figures based on 2015 Budget.
R Revised 2014 Budget.
N/A Not available.

(1) Per capita GDP in U.S. dollars has been converted from Rupiah into U.S. dollars and the U.S. dollar amounts of external debt of the
central Government have been converted into Rupiah at the following exchange rates per U.S. dollar: Rp10,380 per U.S. dollar for 2009,
Rp9,080 per U.S. dollar for 2010, Rp8,768 per U.S. dollar for 2011, Rp9,358 per U.S. dollar for 2012, Rp10,445 per U.S. dollar for 2013
and Rp11,770 per U.S. dollar for the nine months ended September 30, 2014. These exchange rates are calculated at the B.I. middle
exchange rate.
(2) Official average exchange rate for the relevant period published by Bank Indonesia in its quarterly or annual report.
(3) Real GDP growth as of December 31, 2014 is 5.1%.
(4) Average exchange rate (Rupiah per U.S. dollar) as of December 31, 2014 is Rp11,878.
(5) Inflation rate as of December 31, 2014 is 8.4%.

5
 Economic developments in recent periods include:
Economic growth (real GDP growth of 4.6%, 6.2%, 6.5%, 6.2%, 5.8% and 5.1% in 2009, 2010, 2011,
2012, 2013 and 2014, respectively).
The Rupiah exchange rate averaged Rp10,380, Rp9,080, Rp8,768, Rp9,358, Rp10,445 and Rp11,878 to
the U.S. dollar in 2009, 2010, 2011, 2012, 2013 and 2014, respectively. Pressures on the Rupiah in
2014 were mainly due to concerns over the normalization of the U.S. Federal Reserve policy and a
higher deficit in the Republics balance of payments.
As of December 31, 2014, inflation was recorded at 8.4%, the same as that recorded in the previous
year. Overall inflation increased in the last quarter of 2014 compared to the previous quarter. The
higher inflation rate was primarily due to the fuel subsidy adjustment in November 2014, increased
prices of commodities and increased prices of imported goods. Furthermore, prices for transportation,
communication and financial services rose by 5.6% (month-to-month), while prices of foodstuffs rose
by 3.2% (month-to-month) and prices for processed foods, beverages and cigarettes rose by 2.0%
(month-to-month).
A balanced and diversified economy with manufacturing, trade, hotel and restaurant services, and
agriculture, as the principal sectors. In 2013 and the third quarter of 2014, the manufacturing sector
accounted for the largest portion of GDP (23.7% in 2013 and 23.5% in the third quarter of 2014 using
current market prices) followed by trade, hotel and restaurant services (14.3% in 2013 and 14.4% in the
third quarter of 2014 using current market prices) and agriculture (14.4% in 2013 and 15.0% in the
third quarter of 2014 using current market prices).
Relatively low budget deficits (as a percentage of GDP) of 1.9%, 2.2%, and 2.3% for 2012, 2013 and
2014, respectively. In the Revised 2014 Budget, the projected budget deficit is 2.4% of GDP. The
increased deficit is due to the fall in targeted revenue after taking into account 2013 realized revenue
and the decrease in the real GDP growth rate.
Net inflows of foreign direct investment (FDI) from 2009 through 2013 despite a challenging global
economic environment were U.S.$4.9 billion, U.S.$15.3 billion, U.S.$20.6 billion, U.S.$21.2 billion
and U.S.$23.3 billion in 2009, 2010, 2011, 2012 and 2013, respectively. During the nine months ended
September 30, 2014, net inflows of FDI were U.S.$19.2 billion.
A current account surplus from 2009 through 2011 of U.S.$10.6 billion, U.S.$5.1 billion and U.S.$1.7
billion for 2009, 2010 and 2011, respectively. In 2012 and 2013, the current account posted deficits of
U.S.$24.4 billion and U.S.$29.1 billion, respectively. During the nine months ended September 30,
2014, the current account posted a deficit of U.S.$19.7 billion.
Foreign reserves totalling U.S.$66.1 billion, U.S.$96.2 billion, U.S.$110.1 billion, U.S.$111.1 billion,
U.S.$99.4 billion and U.S.$112.0 billion as of December 31, 2009, 2010, 2011, 2012, and 2013 and
November 30, 2014, respectively. The foreign reserves balance as of November 30, 2014 was
equivalent to 6.4 months of imports and servicing of government external debt, and remains above the
international standard of reserve adequacy ratio of 3.0 as published by the IMF.

See Government Budget Reduction of Government Subsidies for Various Fuel Products and Efforts
to Reduce Amounts of Fuel Subsidized by the Government and Government Budget Implementation of
Direct Cash Distribution Program and Increases in Food and Educational Assistance Programs.

CPI in 2014 increased by 8.4% compared to 2013. The higher rate of inflation as at December 31, 2014 was
due primarily to subsidized fuel price hikes, higher airfares and more expensive electricity rates as well as chili
prices rising beyond historical norms as a result of a prolonged dry season. In response to the increase in CPI
over the course of the year, Bank Indonesia increased the Bank Indonesia reference rate (BI Rate) by 25 bps to
7.75% in November 2014.

Indonesia historically relied on foreign lending to finance its fiscal deficit, including official development
aid from foreign governments and loans from multilateral lending organizations such as the World Bank and the
Asian Development Bank (ADB). Indonesias budget policy at that time required that the budget deficit be
financed by external aid and foreign loans from official sources. With the onset of the Asian financial crisis in
1997, the government received foreign loans from the IMF intended to support the Republics balance of
payments as official foreign reserves declined and the rupiah weakened. These loans from the IMF were fully
prepaid by the Republic in October 2006. Since the crisis, Indonesia has successfully completed three rounds of
Paris Club debt rescheduling, an informal intergovernmental forum of official creditors for negotiating debt

6
restructurings, extending its maturity and reducing its amount. The Republic repaid U.S.$1.8 billion in 2009,
U.S.$0.9 billion in 2010, U.S.$0.9 billion in 2011 and U.S.$0.9 billion in 2012. As of October 31, 2014, the
remaining Paris Club debt amounted to U.S.$6.89 billion.

Indonesia no longer relies exclusively on external borrowings. Since 1998, the government has issued
domestic debt as part of its program to recapitalize Indonesias banks and, in 2002, the government began a
program of regularly issuing rupiah-denominated bonds in the domestic market. With the development of a
regulatory framework and support from the government, a secondary market for the governments domestic debt
securities has developed. As part of the governments financial management reforms, the Minister of Finance
issued a ministerial decree on December 30, 2010 that sets forth the governments debt management strategy
through 2014. This comprehensive strategy covers policies on management of the central governments public
debts, external loans and government securities, to assure transparency and accountability. The strategy also
addresses coordination between the Ministry of Finance, Bank Indonesia, Bappenas and Line Ministries in debt
management. The strategy takes into consideration the macroeconomic framework, the current risk and portfolio
profile and the extent to which targets and debt management objectives were achieved under the previous
strategy. The Ministry of Finance plans to maintain major elements of its current strategys policies, for example,
minimizing cost and risk of debt to provide for fiscal and debt sustainability, and maximizing domestic sources
of financing while preserving debt management best practices.

The Republic held its third direct election for President and Vice President in July 2014, following which
President Widodo and Vice President Kalla were sworn in as President and Vice President of the Republic on
October 20, 2014. President Widodo and Vice President Kalla replaced former President Susilo Bambang
Yudhoyono (who served two Presidential terms) and former Vice President Boediono, respectively. As the
seventh President of the Republic since the Republic gained its independence on August 17, 1945, President
Widodo and Vice President Kalla (the only vice president in the history of the Republic to have been re-elected
as vice president) defeated Prabowo Subianto (a retired general of the armed forces and leader of Great Indonesia
Movement Party) and Muhammad Hatta Rajasa (a former minister under former President Yudhoyonos cabinet
and leader of National Mandate Party) by a margin of 6.3 percentage points of votes in the July 9, 2014 direct
general election. Before the recent period of political reform, Indonesia had been under a centralized
authoritarian regime under President Soeharto. Soeharto served as President of the Republic from 1966 until
1998, when he resigned following widespread civil unrest. President Yudhoyono is the fourth President of the
Republic since Soehartos resignation. A series of constitutional amendments adopted in the last few years has
increased the level of direct democracy, decreased the influence of the military in civil government, devolved
power to regional and local government authorities and sought to improve transparency of the countrys judicial
system.

Since 1999, there have been a number of significant and politically influential legislative developments in
Indonesia. These include laws promoting regional autonomy (see Government and Political Developments
Regional Governments and Regional Autonomy), establishment of an independent commission to combat
corruption (see Government and Political Developments Independent Anti-corruption Commission), and
agreements, laws and arrangements in relation to the provinces of Aceh (see Government and Political
Developments Peace Agreement, Special Autonomy and Integration Projects in Aceh) and Papua
(see Government and Political Developments Special Autonomy and Activities in Papua), both of which
had been focuses of domestic unrest.

Overview of the Program

Under the Program, the Republic may, from time to time, issue Notes denominated in U.S. dollars, Euros or
in any other currency, subject to the terms more fully set forth herein. A summary of the terms and conditions of
the Program and the Notes appears below. The applicable terms of any Notes will be agreed upon by and
between the Republic and the relevant Dealer(s) prior to the issue of the Notes and will be set forth in the
Description of the Notes endorsed on, or incorporated by reference into, the Notes, as modified and
supplemented by the applicable Pricing Supplement attached to, or endorsed on, such Notes, as more fully
described under Forms of the Notes below.

The following overview does not purport to be complete and is taken from, and is qualified in its entirety by,
the remainder of this Offering Circular and, in relation to the terms and conditions of any particular Tranche of
Notes, the applicable Pricing Supplement. Words and expressions defined in Forms of the Notes and Description
of the Notes shall have the same meanings in this summary.

7
Summary of the Program and Description of the Notes

Issuer: . . . . . . . . . . . . . . . . . . . . . . . . . . . Republic of Indonesia.

Arrangers: . . . . . . . . . . . . . . . . . . . . . . . Citigroup Global Markets Inc., The Hongkong and Shanghai Banking
Corporation Limited and Standard Chartered Bank.

Description: . . . . . . . . . . . . . . . . . . . . . . Global Medium Term Note Program.

Dealers: . . . . . . . . . . . . . . . . . . . . . . . . . . Citigroup Global Markets Inc., Deutsche Bank AG, Singapore

Branch, Goldman Sachs (Singapore) Pte., The Hongkong and
Shanghai Banking Corporation Limited, J.P. Morgan Securities plc,
Merrill Lynch (Singapore) Pte. Ltd., Socit Gnrale and Standard
Chartered Bank. The Issuer may issue Notes to persons other than
Dealers and may terminate the appointment of any Dealer or appoint
new dealers for a particular Series of Notes or for the Program.

Trustee: . . . . . . . . . . . . . . . . . . . . . . . . . The Bank of New York Mellon.

Paying Agent: . . . . . . . . . . . . . . . . . . . . . The Bank of New York Mellon, The Bank of New York Mellon,
London Branch and The Bank of New York Mellon, Singapore
Branch.

Registrar and Transfer Agent: . . . . . . . With respect to the Notes of any Series for which the Specified
Currency in the applicable Pricing Supplement is Euro, The Bank of
New York Mellon (Luxembourg) S.A. will act as Registrar and
Transfer Agent. With respect to the Notes of any other Series, The
Bank of New York Mellon will act as Registrar and Transfer Agent.

Program Size: . . . . . . . . . . . . . . . . . . . . Up to U.S.$30,000,000,000 (or its equivalent in any other currency

(the Program Limit) in aggregate nominal amount of Notes
outstanding at any one time). The Republic may increase the amount
of the Program Limit in accordance with the terms of the Program
Agreement.

Method of Issue: . . . . . . . . . . . . . . . . . . The Notes will be issued on a syndicated or non-syndicated basis. The
Notes will be issued in series (each, a Series) having one or more
issue dates and on terms otherwise identical (or identical other than in
respect of the first payment of interest and their Issue Price), the
Notes of each Series being intended to be interchangeable with all
other Notes of that Series. Each Series may be issued in tranches
(each, a Tranche) on the same or different issue dates. The specific
terms of each Tranche (which will be completed, where necessary,
with the relevant terms and conditions and, save in respect of the
issue date, issue price, first payment of interest and nominal amount
of the Tranche, will be identical to the terms of other Tranches of the
same Series) will be specified in the pricing supplement (the Pricing
Supplement).

Issue Price: . . . . . . . . . . . . . . . . . . . . . . . Notes may be issued at their nominal amount or at a discount or

premium to their nominal amount. Partly Paid Notes may be issued,
the issue price of which will be payable in two or more installments.

Form of Notes: . . . . . . . . . . . . . . . . . . . . The Notes may be issued in bearer or registered form, as specified in
the applicable Pricing Supplement. Certificates representing the Notes
that are registered in the name of a nominee for one or more clearing
systems are referred to as Global Securities.

8
Each Series of Bearer Notes will initially be represented by a
Temporary Global Note or a Permanent Global Note which, in each
case, will be deposited on the Issue Date with a common depositary
for Euroclear, Clearstream or any other agreed clearance system
compatible with Euroclear and Clearstream. Interests in a Temporary
Global Note will be exchangeable, upon request as described therein,
for either interests in a Permanent Global Note or Definitive Bearer
Notes (as indicated in the applicable Pricing Supplement and subject,
in the case of Definitive Bearer Notes, to such notice period as is
specified in the applicable Pricing Supplement) upon certification of
non-U.S. beneficial ownership as required by United States Treasury
regulations (U.S. Treasury Regulations). Interests in a Permanent
Global Note will be exchangeable, unless otherwise specified in the
applicable Pricing Supplement, only in the limited circumstances
described therein, in whole but not in part for Definitive Bearer
Notes, upon written notice to the Trustee. Any interest in a
Temporary Global Note or a Permanent Global Note will be
transferable only in accordance with the rules and procedures for the
time being of Euroclear, Clearstream and/or any other agreed
clearance system, as appropriate.

Notes may be issued with the benefit of a guarantee. Details of any

guarantee and the guarantor will be set out in the applicable Pricing
Supplement.

Each Series of Registered Notes, which are sold outside the

United States in reliance on Regulation S, will be represented by an
Unrestricted Global Security, which will be deposited on or about its
Issue Date (i) with a common depositary for, and registered in the
name of a nominee of, Euroclear and Clearstream, (ii) with a
custodian for, and registered in the name of a nominee of, DTC or
(iii) as otherwise specified in the applicable Pricing Supplement.
Unrestricted Global Securities will be exchangeable for Certificated
Securities only in the limited circumstances more fully described
herein.

Any Series of Registered Notes sold in private transactions to QIBs

and subject to the transfer restrictions described in Notice to
Purchasers and Holders of Notes and Transfer Restrictions will be
represented by a Restricted Global Security, which will be deposited
on or about its Issue Date (i) with a common depositary for, and
registered in the name of a nominee of, Euroclear and Clearstream,
(ii) with a custodian for, and registered in the name of a nominee of,
DTC or (iii) as otherwise specified in the applicable Pricing
Supplement. Persons holding beneficial interests in Registered Global
Securities will be entitled or required, as the case may be, under the
circumstances described in the Indenture, to receive physical delivery
of Certificated Securities. Registered Notes initially offered and sold
in the United States to institutional accredited investors pursuant to
Section 4(a)(2) of the Securities Act or in a transaction otherwise
exempt from registration under the Securities Act and subject to the
transfer restrictions described in Notice to Purchasers and Holders
of Notes and Transfer Restrictions will be issued only in definitive
registered form and will not be represented by a Global Security.

Bearer Notes will not be exchangeable for Registered Notes, and

Registered Notes will not be exchangeable for Bearer Notes.

9
Clearing Systems: . . . . . . . . . . . . . . . . . DTC, Clearstream, Euroclear and, in relation to any Tranche, such
other clearing system as may be agreed between the Republic, the
Trustee and the relevant Dealer. See Global Clearance and
Settlement Systems.

Currencies: . . . . . . . . . . . . . . . . . . . . . . . Subject to compliance with all relevant laws, regulations and

directives, Notes may be issued in any currency agreed between the
Republic and the relevant Dealer(s).

Maturities: . . . . . . . . . . . . . . . . . . . . . . . Subject to compliance with all relevant laws, regulations and

directives, any maturity.

Specified Denomination: . . . . . . . . . . . . Notes in definitive form will be in such denominations as may be

specified in the relevant Pricing Supplement save that (i) in the case
of any Notes which are to be admitted to trading on a regulated
market within the European Economic Area or offered to the public in
an EEA State in circumstances which require the publication of a
prospectus under the Prospectus Directive, the minimum specified
denomination shall be 100,000 (or its equivalent in any other
currency as of the date of issue of the Notes); and (ii) unless
otherwise permitted by then current laws and regulations, Notes
(including Notes denominated in sterling) which have a maturity of
less than one year will have a minimum denomination of 100,000
(or its equivalent in other currencies).

Fixed Rate Notes: . . . . . . . . . . . . . . . . . Fixed interest will be payable in arrears on the date or dates in each
year specified in the relevant Pricing Supplement.

Floating Rate Notes: . . . . . . . . . . . . . . . Floating Rate Notes will bear interest determined separately for each
Series as set out in Description of the Notes and the relevant Pricing
Supplement.

Zero Coupon Notes: . . . . . . . . . . . . . . . Zero Coupon Notes may be issued at their nominal amount or at a
discount to it and will not bear interest.

Dual Currency Notes: . . . . . . . . . . . . . . Payments in respect of Dual Currency Notes will be made in such
currencies, and based on such rates of exchange as may be specified
in the relevant Pricing Supplement.

Index Linked Notes: . . . . . . . . . . . . . . . Payments of principal in respect of Index Linked Redemption Notes
or of interest in respect of Index Linked Interest Notes will be
calculated by reference to such index and/or formula as may be
specified in the relevant Pricing Supplement.

Interest Periods and Interest Rates: . . The length of the interest periods for the Notes and the applicable
interest rate or its method of calculation may differ from time to time
or be constant for any Series. Notes may have a maximum interest
rate, a minimum interest rate, or both. All such information will be set
out in the relevant Pricing Supplement.

Redemption: . . . . . . . . . . . . . . . . . . . . . . The relevant Pricing Supplement will specify the basis for calculating
the redemption amounts payable. Unless permitted by then current
laws and regulations, Notes (including Notes denominated in sterling)
which have a maturity of less than one year must have a minimum
redemption amount of 100,000 (or its equivalent in other
currencies).

10
Redemption by Installments: . . . . . . . . The Pricing Supplement issued in respect of each issue of Notes that
are redeemable in two or more installments will set out the dates on
which, and the amounts in which, such Notes may be redeemed.

Optional Redemption: . . . . . . . . . . . . . . The Pricing Supplement issued in respect of each issue of Notes will
state whether such Notes may be redeemed prior to their stated
maturity at the option of the Republic (either in whole or in part) and/
or the Holders, and if so the terms applicable to such redemption.

Status of Notes: . . . . . . . . . . . . . . . . . . . Senior Notes will constitute unsubordinated and unsecured

obligations of the Republic. See Description of the Notes
General.

Negative Pledge: . . . . . . . . . . . . . . . . . . See Description of the Notes Negative Pledge Covenant of the
Republic.

Modifications . . . . . . . . . . . . . . . . . . . . . See Description of the Notes Modifications.

Ratings: . . . . . . . . . . . . . . . . . . . . . . . . . Tranches of Notes will be rated or unrated. Where a Tranche of Notes

is to be rated, such rating will be specified in the relevant Pricing
Supplement.

A rating is not a recommendation to buy, sell or hold securities and

may be subject to suspension, reduction or withdrawal at any time by
the assigning rating agency.

Withholding Tax: . . . . . . . . . . . . . . . . . All payments of principal and interest in respect of the Notes will be
made free and clear of withholding taxes of Indonesia, subject to
customary exceptions, all as described in Description of the Notes
Taxation.

Selling Restrictions: . . . . . . . . . . . . . . . . The United States, Hong Kong, Japan, Singapore, the Public Offer
Selling Restriction under the Prospectus Directive (in respect of Notes
having a specified denomination of less than 100,000 or its
equivalent in any other currency as of the date of issue of the Notes)
and the United Kingdom. See Subscription and Sale.

Bearer Notes will be issued in compliance with U.S. Treasury

Regulations 1.163-5(c)(2)(i)(D) (or any successor U.S. Treasury
Regulation section including, without limitation, regulations issued in
accordance with U.S. Internal Revenue Service Notice 2012-20 or
otherwise in connection with the U.S. Hiring Incentives to Restore
Employment Act of 2010) (the D Rules) unless (i) the relevant
Pricing Supplement states that Bearer Notes are issued in compliance
with U.S. Treasury Regulations 1.163-5(c)(2)(i)(C) (or any
successor U.S. Treasury Regulation section including, without
limitation, regulations issued in accordance with U.S. Internal
Revenue Service Notice 2012-20 or otherwise in connection with the
U.S. Hiring Incentives to Restore Employment Act of 2010) (the
C Rules) or (ii) Bearer Notes are issued other than in compliance
with the D Rules or the C Rules but in circumstances in which the
Notes will not constitute registration required obligations for U.S.
federal income tax purposes, which circumstances will be referred to
in the relevant Pricing Supplement as a transaction to which the Tax
Equity and Fiscal Responsibility Act of 1982 (TEFRA) is not
applicable.

Listing: . . . . . . . . . . . . . . . . . . . . . . . . . . Application will be made to the SGX-ST for permission to deal in and
quotation of any Notes that may be issued pursuant to the Program

11
 and which are agreed at or prior to the time of issue thereof to be so
listed on the SGX-ST. There is no assurance that the application to
the Official List of the SGX-ST for the listing of a particular Series
will be approved. For so long as any Notes are listed on the SGX-ST
and the rules of the SGX-ST so require, such Notes will be traded on
the SGX-ST in a minimum board lot size of S$200,000 (or its
equivalent in any other currency). The Notes may also be listed on
such other or further stock exchange(s) as may be agreed between the
Issuer and the relevant Dealer in relation to each Series. Unlisted
Notes may also be issued under the Program. The relevant Pricing
Supplement will state whether or not the Notes of a Series will be
listed on any exchange(s) and, if so, on which exchange(s) the Notes
are to be listed.

Governing Law: . . . . . . . . . . . . . . . . . . . The Notes will be governed by, and construed in accordance with, the
laws of the State of New York.

12
 REPUBLIC OF INDONESIA

Overview
Indonesia, the fourth most populous country in the world with a population of approximately 248.8 million
as of June 2014, is a developing nation in Southeast Asia spread across an archipelago of 17,504 islands.
Indonesia is undergoing rapid economic change and has also undergone fundamental political changes,
transforming from what was once a centralized, authoritarian system to a participatory democracy that places
greater political power in the hands of local and regional governments.

The following table sets forth certain of the Republics principal economic indicators as of and for the
specified dates and periods. Growth in real GDP and inflation (measured by changes in the Consumer Price
Index (CPI)) are indicated on a year-on-year basis.

Selected Key Economic Indicators

Nine months
ended Year ended
Year ended December 31, September 30, December 31,
2009 2010 2011 2012 2013 2014R 2014 2015B
National account and prices:
Real GDP growth . . . . . . 4.6% 6.2% 6.5% 6.2% 5.8% 5.5% 5.0%(3) 5.8%
Per capita GDP
(in thousands of
Rupiah) . . . . . . . . . . . . 23,880 27,028 30,795 33,748 36,508 N/A N/A N/A
Per capita GDP
(in U.S. dollars)(1) . . . . 2,347 3,004 3,541 3,606 3,803 N/A N/A N/A
Average exchange rate
(Rupiah per
U.S. dollar)(2) . . . . . . . . 10,380 9,080 8,768 9,358 10,445 11,600 11,770(4) 11,900
Inflation rate
(change in CPI) . . . . . . 2.8% 7.0% 3.8% 4.3% 8.4% 5.3% 4.5%(5) 4.4%
External sector:
Current account
(% of GDP) . . . . . . . . . 2.0% 0.7% 0.2% (2.8)% (3.3)% N/A (3.1)% N/A
Fiscal account:
Budget surplus/(deficit)
(% of GDP) . . . . . . . . . (1.6)% (0.7)% (1.1)% (1.9)% (2.2)% (2.4)% (1.5)% 2.2%
External debt of the
central Government
(in trillions of
Rupiah) . . . . . . . . . . . . 817 775 777 849 1,108 N/A 1,132 N/A
Debt service ratio
(% of government
revenue) . . . . . . . . . . . 24.3% 21.0% 18.8% 19.2% 19.1% N/A 24.4% N/A
Sources: BPS, Bank Indonesia and Ministry of Finance
B Projected figures based on 2015 Budget.
R Revised 2014 Budget.
N/A Not available.

(1) Per capita GDP in U.S. dollars has been converted from Rupiah into U.S. dollars and the U.S. dollar amounts of external debt of the
central Government have been converted into Rupiah at the following exchange rates per U.S. dollar: Rp10,380 per U.S. dollar for 2009,
Rp9,080 per U.S. dollar for 2010, Rp8,768 per U.S. dollar for 2011, Rp9,358 per U.S. dollar for 2012, Rp10,445 per U.S. dollar for 2013
and Rp11,770 per U.S. dollar for the nine months ended September 30, 2014. These exchange rates are calculated at the B.I. middle
exchange rate.
(2) Official average exchange rate for the relevant period published by Bank Indonesia in its quarterly or annual report.
(3) Real GDP growth as of December 31, 2014 is 5.1%.
(4) Average exchange rate (Rupiah per U.S. dollar) as of December 31, 2014 is Rp11,878.
(5) Inflation rate as of December 31, 2014 is 8.4%.

Economic developments in recent periods include the following:

Economic growth (real GDP growth of 4.6%, 6.2%, 6.5%, 6.2%, 5.8%, and 5.1% in 2009, 2010, 2011,
2012, 2013 and 2014, respectively).
The Rupiah exchange rate averaged Rp10,380, Rp9,080, Rp8,768, Rp9,358, Rp10,445, and Rp11,878
to the U.S. dollar in 2009, 2010, 2011, 2012, 2013 and 2014, respectively. Pressures on the Rupiah in
2014 were mainly due to concerns over the normalization of the U.S. Federal Reserve policy and a
higher deficit in the Republics balance of payments.

13
 As of December 31, 2014, inflation was recorded at 8.4%, the same as that recorded in the previous
year. Overall inflation increased in the last quarter of 2014 compared to the previous quarter. The
higher inflation rate was primarily due to the fuel subsidy adjustment in November 2014, increased
prices of commodities and increased prices of imported goods. Furthermore, prices for transportation,
communication and financial services rose by 5.6% (month-to-month), while prices of foodstuffs rose
by 3.2% (month-to-month) and prices for processed foods, beverages and cigarettes rose by 2.0%
(month-to-month).
A balanced and diversified economy with manufacturing, trade, hotel and restaurant services, and
agriculture, as the principal sectors. In 2013 and the third quarter of 2014, the manufacturing sector
accounted for the largest portion of GDP (23.7% in 2013 and 23.5% in the third quarter of 2014 using
current market prices) followed by trade, hotel and restaurant services (14.3% in 2013 and 14.4% in the
third quarter of 2014 using current market prices) and agriculture (14.4% in 2013 and 15.0% in the
third quarter of 2014 using current market prices).
Relatively low budget deficits (as a percentage of GDP) of 1.9%, 2.2%, and 2.3% for 2012, 2013 and
2014, respectively. In the Revised 2014 Budget, the projected budget deficit is 2.4% of GDP. The
increased deficit is due to the fall in targeted revenue after taking into account 2013 realized revenue
and the decrease in the real GDP growth rate.
Net inflows of foreign direct investment (FDI) from 2009 through 2013, despite a challenging global
economic environment were, U.S.$4.9 billion, U.S.$15.3 billion, U.S.$20.6 billion, U.S.$21.2 billion
and U.S.$23.3 billion in 2009, 2010, 2011, 2012 and 2013, respectively. During the nine months ended
September 30, 2014, net inflows of FDI were U.S.$19.2 billion.
A current account surplus from 2009 through 2011 of U.S.$10.6 billion, U.S.$5.1 billion and
U.S.$1.7 billion for 2009, 2010 and 2011, respectively. In 2012 and 2013, the current account posted
deficits of U.S.$24.4 billion and U.S.$29.1 billion, respectively. During the nine months ended
September 30, 2014, the current account posted a deficit of U.S.$19.7 billion.
Foreign reserves totalling U.S.$66.1 billion, U.S.$96.2 billion, U.S.$110.1 billion, U.S.$111.1 billion,
U.S.$99.4 billion and U.S.$112.0 billion as of December 31, 2009, 2010, 2011, 2012, and 2013 and
November 30, 2014, respectively. The foreign reserves balance as of November 30, 2014 was
equivalent to 6.4 months of imports and servicing of government external debt, and remains above the
international standard of reserve adequacy ratio of 3.0 as published by the IMF.

See Government Budget Reduction of Government Subsidies for Various Fuel Products and Efforts to
Reduce Amounts of Fuel Subsidized by the Government and Government Budget Implementation of Direct
Cash Distribution Program and Increases in Food and Educational Assistance Programs.

As of October 31, 2014, Indonesias remaining Paris Club debt amounted to U.S.$6.89 billion.

Revised 2014 Budget

On June 30, 2014 the Republic issued Law No.12 of 2014 on Revision of Law No. 23 of 2013 on the 2014
Budget (the Revised 2014 Budget) effective as of July 1, 2014.

The 2014 Budget was revised primarily due to changes in macroeconomic assumptions and an increase in
energy subsidy (fuel and electricity) which are predicted to significantly influence the realized 2014 Budget.
These two factors may potentially cause the 2014 Budget deficit to exceed 3.0% of GDP, the limit allowed under
Law No. 17 of 2003 on Public Finance. As a result, the Government undertook certain protective actions as
prescribed by law to revise the 2014 Budget and formulate the Revised 2014 Budget including:
a. efforts to increase state revenues (tax and non tax);
b. controlling the energy subsidy (fuel and electricity); and
c. cutting the budget on Ministries and Agencies spending by Rp43 trillion in relation to the unproductive
account and personal expenses.

The key macroeconomic assumptions underlying the Revised 2014 Budget, as compared to the 2014
Budget, are as follows:
real GDP growth rate of 5.5% in the Revised 2014 Budget, compared to 6.0% in the 2014 Budget;
inflation rate of 5.3% in the Revised 2014 Budget, compared to 5.5% in the 2014 Budget;

14
 three-month short-term SPN of 6.0% in the Revised 2014 Budget, compared to 5.5% in the 2014
Budget;
exchange rate of Rp11,600 to U.S.$1 in the Revised 2014 Budget, compared to Rp10,500 to U.S.$1 in
the 2014 Budget;
oil production by the Republic of 818,000 barrels of oil per day in the Revised 2014 Budget, compared
to 870,000 barrels of oil per day in the 2014 Budget;
gas production by the Republic of 1.2 million barrels of gas per day in the Revised 2014 Budget,
compared to 1.24 million barrels of gas per day in the 2014 Budget;
Indonesia Crude Price (ICP) of U.S.$105 per barrel in the Revised 2014 Budget, the same as that in the
2014 Budget; and
revised projected nominal GDP of Rp10,062.8 trillion in the Revised 2014 Budget (calculated at
current market prices), compared to Rp10,365.6 trillion in the 2014 Budget (calculated at current
market prices).

The Revised 2014 Budget shows a decrease in state revenue. Factors influencing changes in state revenue
are economic growth, inflation, currency exchange rate, crude oil price, and oil and gas lifting costs, as well as an
alteration in the basis of counting. This new basis of counting and changes in macroeconomic conditions resulted
in a lower tax revenue projection for 2014.

The Revised 2014 Budget contemplates an increase in the overall central government deficit despite a
decrease in Government spending in some areas. The changes include:
an increase in subsidy allocation, mainly for fuel and electricity subsidies;
an increase in debt interest payment as a consequence of an interest rate increase (three months SPN)
and a weakening in the Rupiah against the U.S. dollar;
a decrease in the spending of Ministries and Agencies in general due to cost-saving policies and
decreasing spending of Ministries and Agencies; and
an increase in certain spending reserves such as the natural disaster reserve, the national health
insurance (Jamkesmas) arrears reserve, and a deficiency payment for the allowance for teacher as
profession reserve.

The Revised 2014 Budget includes a target fiscal deficit of 2.4% of the projected GDP, higher than the
projected fiscal deficit of 1.7% of GDP in the 2014 Budget and higher than the fiscal deficit of 2.2% of GDP in
2013. Total expenditure under the Revised 2014 Budget is projected to be Rp1,876.9 trillion compared to
Rp1,842.5 trillion in the 2014 Budget and Rp1,650.5 trillion of actual expenditure in 2013. Transfer to regions in
the Revised 2014 Budget is Rp596.5 trillion (a decrease of 0.7% from the 2014 Budget), caused by a decrease in
the Sharing Fund (DBH) while the General Allocation Fund and Specific Allocation Fund remain the same. The
Revised 2014 Budget projects total revenue (including grants) of Rp1,635.4 trillion (equivalent to 16.3% of
GDP), compared to Rp1,667.1 trillion (equivalent to 16.1% of GDP) in the 2014 Budget and Rp1,438.9 trillion
(equivalent to 15.3% of GDP) in 2013. The Revised 2014 Budget projects a deficit of Rp241.5 trillion, compared
to Rp175.4 trillion in the 2014 Budget and Rp211.6 trillion in 2013. Sources of financing are mainly from
government securities (SBN) issuances and program loans. The Government has also prepared a standby loan
(Pinjaman Siaga) to provide assistance whenever access to domestic financing is difficult (particularly SBN
issuances) and the realized deficit exceeds the target in the Revised 2014 Budget.

In the Revised 2014 Budget, the energy subsidy is budgeted to be Rp350.3 trillion using a crude oil price
assumption of U.S.$105 per barrel. The energy subsidy budget increased by Rp68.2 trillion from the 2014
Budget because of changes in the macroeconomic basic assumptions and subsidy parameters (which include ICP,
exchange rate and the volume of subsidized fuel). Under the Revised 2014 Budget, the total subsidies budget
increased to Rp403.0 trillion from Rp333.7 trillion under the 2014 Budget.

2015 Budget
Under the 2015 Budget, which was implemented pursuant to Law No. 27 of 2014 on State Budget of 2015
on October 14, 2014, the Governments main fiscal policies are focused on revenue optimization, improving
government expenditure allocation, controlling the budget deficit and debt management.

15
 The 2015 Budget was formulated during the transition to the new Government, and included a baseline budget
that can be adjusted by the new Government. The 2015 Budget incorporates new policies, including, budget
allocation for rural areas as stated in Law Number 6 of 2014 on rural villages. The 2015 Budget also provides for
greater detail on expenditure, according to the Constitutional Court Dictum Number 35/PUU-XI/2013 dated
May 22, 2014 and the amendment of Law Number 17 of 2014 which emphasized budget discussions between the
Government and DPR.

Fiscal policies have been implemented to accelerate sustainable and equitable economic growth with three
major objectives:
(a) managing the deficit within safe limits through optimizing government revenue and maintaining an
investment-friendly environment, as well as improving expenditure quality and structure;
(b) maintaining the debt-to-GDP ratio by obtaining financing from safe sources and directing debt to
productive activities; and
(c) controlling fiscal risk by maintaining debt to domestic revenue ratio, debt service ratio, and debt
composition with measurable government assurance.

The key macroeconomic assumptions underlying the 2015 Budget, as compared to the Revised 2014
Budget, are as follows:
real GDP growth rate of 5.8% in the 2015 Budget, compared to 5.5% in the Revised 2014 Budget;
inflation rate of 4.4% in the 2015 Budget, compared to 6.7% in the Revised 2014 Budget;
three-month short-term SPN of 6.0% in the 2015 Budget, the same as that in the Revised 2014 Budget;
exchange rate of Rp11,900 to U.S.$1 in the 2015 Budget, compared to Rp11,629 to U.S.$1 in the
Revised 2014 Budget;
oil production by the Republic of 900,000 barrels of oil per day in the 2015 Budget, compared to
818,000 barrels of oil per day in the Revised 2014 Budget;
gas production by the Republic of 1.25 million barrels of gas per day in the 2015, compared to
1.2 million barrels of gas per day in the Revised 2014 Budget;
ICP of U.S.$105 per barrel in the 2015, the same as that in the Revised 2014 Budget; and
a revised projected nominal GDP of Rp11,146.9 trillion in the 2015 Budget (calculated at current
market prices), compared to Rp10,062.8 trillion in the Revised 2014 Budget (calculated at current
market prices).

The Government aims to achieve revenue optimization by implementing fiscal incentives to improve value
and competitiveness, adjusting the policy on import-export fees and income tax, as well as by formulating a new
excise tariff for tobacco and other goods. In addition, expenditure in the 2015 Budget will focus on improving
infrastructure to encourage economic growth, strengthening national transport connections and diversifying
energy utilization, enhancing public welfare by providing affordable and quality education, as well as re-
allocating social assistance to expand the coverage of social protection programs, such as School Operational
Assistance (BOS), Assistance for Poor Students (BSM) and the Family Hope Program (PKH) and improving the
quality of public health insurance through allocating a budget for those who require assistance (PBI), poverty
eradication, and for a natural disaster reserve fund. The 2015 Budget includes a target fiscal deficit of 2.21% of
the projected GDP in 2015, lower than the Revised 2014 Budget of 2.4%. Total expenditure under the 2015
Budget is estimated at Rp2,039.5 trillion, an increase of Rp162.6 trillion from the Revised 2014 Budget. The
2015 Budget total revenue (including grants) amounts to Rp1,793.6 trillion, an increase of Rp158.2 trillion
compared to the Revised 2014 Budget.

In the 2015 Budget, a rural fund is allocated for every village and formulated by considering each villages
population, poverty level and regional space. The 2015 Budget allocated Rp647.0 trillion for the Transfer to
Regions and Rural Fund, an increase of 8.5% from Revised 2014 Budget. The Balanced Fund increased to
Rp24.5 trillion, while DBH, the General Allocation Fund (Dana Alokasi Umum, or DAU) and the Special
Allocation Fund (Dana Alokasi Khusus, or DAK) amounted to Rp127.7 trillion, Rp352.9 trillion and Rp35.8
trillion respectively.

In order to maintain fiscal sustainability, the deficit target in the 2015 Budget is 2.21% of GDP. Based on
debt portofolio indicators, debt financing is expected to cause an increase in the debt-to-GDP ratio from 25.6% in

16
the Revised 2014 Budget to 26.0% in the 2015 Budget, an increase in the debt to domestic revenue ratio from
157.7% to 163.8% and an increase in the amortization to domestic revenue ratio from 12.2% in the Revised 2014
Budget to 12.5% in the 2015 Budget. These increases are within the Governments acceptable limits. The 2015
Budget projects a deficit of Rp245.9 trillion, Rp11.7 trillion lower than the 2014 Revised Budget. The
Government expects to finance the projected deficit under the 2015 Budget from both domestic and international
sources.

Inflation
Inflation during the first nine months of 2014 and the month of October 2014 continued a downward trend.
Headline inflation was 4.5% (year-on-year) in the third quarter of 2014, which was lower than the headline
inflation rate of 6.7% (year-on-year) in the preceding quarter. (Inflation in October 2014 rose slightly to record
4.8% year-on-year). The downward inflation rate trend during the nine months ended September 30, 2014 was
linked to the impact of controlled core inflation and the inflation of volatile foods. In the third quarter of 2014,
inflation of volatile foods was lower than the previous quarter as supply increased in line with distribution.
Controlled core inflation, supported by reduced external and domestic demand, also helped lower the headline
rate of inflation. However, the November 2014 fuel subsidy adjustment increased the rate of inflation. Headline
inflation increased in November 2014 to 6.2% (year-on-year), peaking in December 2014 to 8.4% (year-on-year).
Despite these factors, core inflation has been relatively stable in the last three years and remained below 5%,
recording 4.9% (year-on-year) as of December 2014.

Bank Indonesia Regulation on Prudential Principles in Managing External Debt of Non-Bank Corporation
On October 28, 2014, Bank Indonesia issued Bank Indonesia Regulation No.16/20/PBI/2014 on
Implementation of Prudential Principle in Managing Foreign Debt of Non-Bank Corporation
(Regulation No. 16/20). This regulation was issued to assist non-bank corporations mitigate risks emerging from
external debt activities, in particular, currency risks, liquidity risks and risks resulting from being over leveraged.

Under Regulation No. 16/20, non-bank corporations must comply with the following prudential principles:
(a) to maintain a minimum hedging ratio (the ratio between the difference of foreign currency assets and
foreign currency liabilities with a maturity period of up to three months after the end of a quarter, and
the difference of foreign currency assets and foreign currency liabilities with a maturity period of three
to six months after the end of a quarter) of 25% by hedging foreign currency exposure against the
Rupiah;
(b) to maintain a minimum liquidity ratio (the ratio between foreign currency assets and foreign currency
liabilities) of 70% by providing sufficient foreign currency assets to satisfy any foreign currency
liabilities maturing three months after the end of a quarter; and
(c) to maintain a credit rating and/or only issue foreign currency liabilities with a credit rating of no less
than BB issued by a rating agency as defined under Regulation No. 16/20 or rating agencies with
ratings acknowledged by the Financial Services Authority (OJK).

Regulation No. 16/20 came into effect on January 1, 2015. However, Non-Bank Corporations may achieve
compliance with Regulation No. 16/20 until December 31, 2015 by maintaining: (i) a minimum hedging ratio of
foreign currency exposure against the Rupiah of 20%; and (ii) a minimum liquidity ratio of 50% of foreign
currency assets to foreign currency liabilities. The obligation on credit ratings will only be applicable for external
debt raised after January 1, 2016.

Bank Indonesia regulations to strengthen the financial market

To strengthen monetary policy and increase the Indonesian financial markets resilience to external shocks,
Bank Indonesia continues to improve the micro structure of the financial system in Indonesia through financial
markets, especially in the Rupiah money market and foreign exchange market.

To enhance foreign currency liquidity instruments in the underdeveloped Sharia financial market, Bank
Indonesia issued a regulation on Sharia Foreign Currency Term Deposits on July 25, 2014. The regulation of
Sharia Foreign Currency Term Deposits is contained within Bank Indonesia Regulation No. 16/12/PBI/2014 on
Sharia Monetary Operations. Sharia Foreign Currency Term Deposits represent the first Islamic monetary
instruments denominated in a foreign currency issued by Bank Indonesia. The new instruments will expand the
role of Islamic banks in financing the economic growth of the Republic. Sharia foreign currency term deposits
represent an effective way to maintain liquidity in the foreign currency money market.

17
 To support liquidity management in the domestic market through the provision of hedging, on December 24,
2013 Bank Indonesia issued Bank Indonesia Regulation (PBI) No.l5/17/PBI/2013 concerning swap hedging
transactions which revoked PBI No. 7/36/PBI/2005. The amendments in the new regulation include, among
others, the expansion of the underlying transactions and tenor of contracts (up to three years) and the adjustment
of pricing based on market mechanisms. To further support implementation of hedging for productive sectors, on
September 17, 2014 Bank Indonesia promulgated PBI No. 16/19/PBI/2014 to amend PBI No. 15/17/PBI/2013.
The amended regulation (i) expands the scope of the underlying transaction to include foreign loans in the form
of bank credit agreements and/or the issuance of debt securities and declared business funds; (ii) allows banks to
extend their transaction obligations on their hedge contracts and swaps hedging transactions with Bank
Indonesia; and (iii) allows the use of netting to settle the extension of swap hedging transactions with Bank
Indonesia.

The Regulation on Foreign Exchange Transactions against the Rupiah was enacted on September 1, 2014 to
achieve and maintain the stability of the Rupiah. Bank Indonesia aims to strengthen the resilience of the domestic
market to better support real economic activities and handle shocks from capital flow movements. To achieve
these objectives the Government issued regulations concerning foreign exchange transactions against the Rupiah
to banks with domestic banks with their domestic customers (Bank Indonesia Regulation (PBI) No.16/16/PBI/
2014) and foreign parties (PBI No.16/17/PBI/2014). The new foreign exchange regulations revoked six previous
Bank Indonesia Regulations. Amendments introduced by the new regulations include: (i) the broadening of
underlying transactions which cover the trade of goods and services and investment activities; (ii) increasing the
breath of underlying documentation, such that documentation including projections are caught; (iii) requiring a
transaction confirmation detailing the scope, including a reference to the nominal amount and term (with a
minimum tenor of one week); and (iv) allowing the use of netting to settle derivative transactions (particularly
for roll-over/early termination/unwinding purposes).

Bank Indonesia provides support to investors using banks to hedge their investments in Indonesia through
long term derivative transactions. Bank Indonesia allows banks to pass on their exposure, particularly their
exposure relating to the foreign financing of infrastructure investments, public utilities, or input products to Bank
Indonesia. On September 17, 2014 Bank Indonesia amended the Regulation Concerning Hedging Transaction to
Banks (PBI No.16/18/PBI/2014), to promote hedging against exchange rate movements, through the creation of
new rules designed to enable settlement netting on the underlying transactions.

In the domestic Rupiah money market, Bank Indonesia facilitated the drafting of the Mini Master
Repurchase Agreement (Mini MRA) in December 2013 to aid the development of secured interbank transactions
for liquidity management. Initially, only eight banks adopted the Mini MRA, but as of September 2014, a total of
67 banks had signed the Mini MRA. The cumulative volume of repurchase transactions from December 2013 to
September 2014, using the underlying instruments of Government Securities, BI Certificates, and BI Certificates
of Deposit, reached Rp116.2 trillion (average of Rp618.2 billion daily). By comparison in the January to
November 2013 period, transaction volume was Rp30.9 trillion (average of Rp140.1 billion daily).

Insurance Law
New Law No. 40 of 2014 on Insurance (New Insurance Law) was issued on October 17, 2014 to replace
Law No. 2 of 1992 on Insurance. The New Insurance Law targets improved regulation of insurance within
Indonesia by creating a healthier, more reliable, trustworthy and competitive insurance industry. In addition the
New Insurance Law relieves the insurance industrys responsibility to aid national development.

Key changes introduced under the New Insurance Law include:

(i) setting out the legal basis for the administration of sharia insurance and sharia re-insurance businesses;
(ii) setting out the legal status of insurance companies in the form of mutual businesses (usaha bersama) as
legal entities as well as accommodating limited liability companies (Perseroan Terbatas or PT) and
cooperatives (koperasi) as forms of legal entities allowed to establish an insurance company;
(iii) improved regulation concerning the ownership of insurance companies to promote national interests,
such as;
(a) allowing foreign entities to establish insurance companies in conjunction with Indonesian entities
or individuals, providing that such foreign entity is already carrying out an insurance business or
is a holding company with subsidiaries engaging in the insurance business;

18
 (b) ensuring foreign individuals are only allowed to own insurance companies through stock market
transactions;
(c) additional regulation through Government Regulation No.39 of 2008 to govern the quantitative
limitation of foreign share ownership in an insurance company with regard to the current
maximum ownership of 80;
(iv) mandating insurance and sharia insurance companies to manage cooperation with other parties in
relation to marketing insurance and sharia insurance services; and
(v) improved provisions regarding good corporate governance, financial health and good corporate
conduct, particularly in relation to the introduction of OJK as the regulatory and supervisory agency of
insurance businesses.

Further, under the New Insurance Law petitions for the bankruptcy of an insurance company, sharia
insurance company, re-insurance company and/or sharia re-insurance company may only be submitted by OJK.
The New Insurance Law also revoked the provisions on submission of bankruptcy petition by the Minister of
Finance as previously set out in Law No.37 of 2004 on Bankruptcy and Suspension of Payment.

Government Regulations on Mining

On January 11, 2014 Government Regulation (GR) No. 1 of 2014 (GR No. 1/2014) was issued as the
second amendment to the GR No.23 of 2010 on Implementation of Mineral and Coal Mining Activities. This
enactment continues the Governments policy to increase the Added Value on mineral products extracted from
Indonesia through increased domestic processing and smelting activities. Under GR No. 1/2014, concession
holders and holders of operation and production mining licenses are no longer allowed to export non-processed
or non-smelted mineral ore from January 12, 2014. Despite the introduction of GR No. 1/2014, concession
holders and holders of operation and production mining licenses are still permitted to export limited quantities of
mineral products provided they have carried out domestic smelting and domestic processing activities of their
metal mineral products up to the minimum required limit.

As an implementing regulation to GR No. 1/2014, on January 11, 2014, the Minister of Energy and Mineral
Resources (MEMR) issued MEMR Regulation No. 1 of 2014 (MEMR No.1/2014) on Increase in the Added
Value of Minerals through Domestic Processing and Smelting Activities. MEMR No.1/2014 sets out in detail the
minimum quantity of domestic smelting and domestic processing that concession holders and operation and
production mining license holders must satisfy in relation to mineral products to permit them to export the
relevant mineral products. Primary mineral commodities such as nickel, bauxite, tin, gold and silver must be
smelted to minimize any production of intermediary products before they can be exported. To provide time for
the completion of smelting infrastructure, certain processed concentrates, including among others, copper, quartz
sand and iron ore may continue to be exported in limited quantities until 2017. Following the expiry of the three-
year grace period, only smelted concentrates will be allowed to be exported.

In line with the policies limiting the export of mineral products, the Minister of Finance also issued
Regulation No.6/PMK.011/2014 on January 11, 2014 as a second amendment to the Minister of Finance
Regulation No.75/PMK.011/2012 on Export Goods Imposed with Export Duty and Tariff on Export Duty. This
regulation established the progressive increase of export duties on various processed mineral products every six
months from 2014 through 2016. The increases have resulted in tariffs rising from a minimum of 20.0% to
25.0% in the first six months of 2014. The tariffs are due to reach 60.0% in the second half of 2016.

Minister of Finance Regulation No.75/PMK.011/2012 has been amended by Minister of Finance Regulation
No.153/PMK.011/2014 effective as of August 4, 2014. Under this regulation, export duties on processed mineral
products applicable to exporters that are in the process of construction of smelter facilities or cooperating in the
construction of smelter facilities are to be determined based on the progress of construction of the smelter
facilities. Construction of such smelter facilities shall include, among others, the entry by the exporter into a
conditional sale and purchase agreement or other documents showing the availability of the raw material, a study
phase, permit or licensing and preparation of infrastructure, basic engineering, mechanical completion,
commissioning and production.

A flat tariff on the export of non-processed mineral products was introduced on August 4, 2014, and will
continue until January 12, 2017 based on the progress of construction, which is divided into three phases. A tariff
of 7.5% is to be applied for Phase I, which covers construction progress of up to 7.5% and includes the provision

19
of a surety bond. A tariff of 5.0% is to be applied for Phase II, which covers construction progress exceeding
7.5% and up to 30.0%. No tariff is to be applied for Phase III, which covers construction progress exceeding
30.0%.

Ministry of Energy and Mineral Resources Regulation on Retail Sales Price of Fuel
On November 17, 2014, the Minister of Energy and Mineral Resources issued Minister of Energy and
Mineral Resources Regulation No. 34 of 2014 Regarding Retail Fuel Price (MEMR No.34/2014), which revokes
MEMR No. 18/2013. MEMR No. 34/2014 provides the following:
(a) the price of gasoline RON 88 is to increase from Rp6,500/liter to Rp8,500/liter (including value added
tax (VAT) and a tax on motor vehicle fuel of 5%);
(b) the price of diesel is to increase from Rp5,500/liter to Rp7,500/liter (including VAT and a tax on motor
vehicle fuel of 5%); and
(c) the price of kerosene is to remain at Rp2,500/liter (including VAT).

On December 31, 2014, President Widodo issued Presidential Regulation No.191 of 2014 (Presidential
Regulation No.191 of 2014) which re-adjusted the subsidized fuel prices and introduced a new mechanism
which became effective as of January 1, 2015. Fuels are categorized into three types: Specific Fuel, Specifically
Assigned Fuel, and Generic Fuel. Specific Fuel is subsidized and consists of diesel fuel and kerosene.
Specifically Assigned Fuel is not subsidized and consists of fuels aside from diesel fuel and kerosene, and
distributed in assigned areas. Generic Fuel is not subsidized and consists of the fuels aside from diesel fuel and
kerosene, and distributed outside the assigned areas.

Retail prices of fuel under Presidential Regulation No.191/2014, which became effective as of January 1,
2015, are set as follows:
(a) Specific Fuel: (i) kerosene at Rp2,500 per liter (inclusive of VAT), and (ii) diesel fuel: is set by taking
the aggregate of basic price, VAT, and motor fuel tax, deducted by subsidy as high as Rp1,000 per
liter. As of January 1, 2015, the retail prices for kerosene and diesel fuel were Rp2,500 per liter and
Rp7,250 per liter, respectively;
(b) Specifically Assigned Fuel: is set by taking the aggregate of basic price, VAT, motor fuel tax, and
distribution cost of 2% of basic price. As of January 1, 2015, the retail price for the Specifically
Assigned Fuel was Rp7,600 per liter; and
(c) Generic Fuel: is set by taking the aggregate of basic price, VAT, motor fuel tax, and margin. For
Generic Fuel, the margin is set between 5% and 10% by petrol station owner, with the motor fuel tax is
set by the local government. As of January 1, 2015, the retail price for the Generic Fuel was Rp7,600
per liter.

Ministry of Energy and Mineral Resources Electricity Tariff

On April 1, 2014, the MEMR issued MEMR Regulation No.09 of 2014 (MEMR No.09/2014) on Tariff of
Electricity Provided by Perusahaan Perseroan (Persero) PT Perusahaan Listrik Negara which provided for revised
electricity tariffs effective May 1, 2014. The main amendment under MEMR No.09/2014 allows PT Perusahaan
Listrik Negara the flexibility to make monthly tariff adjustments on the following categories of tariffs: (i) large
households with a power utilization above 6,600VA; (ii) medium size businesses with a power utilization of
6,600VA up to 200kVA; (iii) large size businesses with a power utilization above 200kVA; and (iv) medium size
government offices with a power utilization of 6,600VA up to 200kVA. Such tariff adjustment measures may be
taken if the basic cost of providing electrical power is affected by positive or negative changes in: (a) U.S.$
exchange rate against Indonesian Rupiah; (b) the Indonesian Crude Price; and/or (c) inflation, based on
guidelines using specific formulae to calculate the tariff adjustment.

MEMR No.09/2014 has been amended by MEMR Regulation No.19 of 2014 (MEMR No.19/2014) issued
on June 30, 2014 in which further tariff increases have been applied to categories of: (i) small size households
with a power utilization between 1,300VA and 2,200VA; (ii) small size households with a power utilization
above 2,200VA; (iii) medium size households with a power utilization between 3,500VA and 5,500VA; (iv) non
listed, medium size companies with a power utilization above 200kVA; (v) large size government offices with
power a utilization above 200kVA; and (vi) lighting for public roads. The additional tariffs were applicable as of
July 1, 2014 and were gradually increased every two months up to November 1, 2014.

On December 11, 2014, the Directorate General of Electricity of MEMR initiated a roadmap for three plans
related to the development and provision of electricity, addressing issues in the short, medium and long term.

20
 In the first two months of 2015, the Directorate General of Electricity of MEMR is focused on overcoming
the power supply crisis within areas experiencing a deficit by undertaking the following steps: (i) declaring a
power supply crisis in areas experiencing a deficit; (ii) increasing usage of captive power (excess power
purchase); (iii) revising the MEMR regulation on Feed in Tariffs in order to minimize future negotiation
possibilities with Perusahaan Listrik Negara (PLN); and (iv) enacting the Ministry of Energy and Mineral
Resource Regulation on the Cooperation and the Procedures of Utilization of Electricity Network in addition to
revising the Ministry of Energy and Mineral Regulation on Business Areas, in order to support the private sector
and electricity customers (both existing customers and new customers), providing greater options for the
purchase of electricity services (from PLN or private companies). During 2015 and 2016, the plan provides for
the following to occur: (a) development of new business areas and the collective utilization of power wheeling;
(b) the development of the Private Power Utility (PPU) and cooperation related to the PPU; (c) creation of
opportunities for major consumers (20 MW) to select power suppliers; and (d) infrastructure development and
gas allocation for LNG and Mini LNG for power supply. During 2017 to 2019, the following steps are planned to
be taken: (1) revitalization of corporate governance; (2) establishment of a new project management office for
PLN to take on the 35,000 MW power project; (3) assigning an office for power plant and sub-stations
construction; and (iv) simplifying the negotiation process with Independent Power Producers.

Beyond the initial five years short term plan, the medium term plan involves reducing power deficits in
certain areas by accelerating the construction of power supply infrastructure and providing affordable electricity
tariffs. The Directorate General of Electricity of MEMRs long term plan is aimed at achieving 100%
electrification throughout Indonesia through the dual construction of mobile power plants specifically designed
for remote islands. Completion of the 2,500 kWh/capita plant power plant is targeted for 2020 and completion of
the 7,500 kWh/capita plant is targeted for 2050.

Budget Savings
The Presidential Instruction No.4 of 2014 on Saving and Cutting Measures on Expenses of Ministries/
Agencies in relation to the Implementation of State Budget of 2014 was issued on May 19, 2014. The President has
instructed 86 relevant ministries and agencies to save a targeted Rp100 trillion through the reduction in expense
budgets. The primary target for budget cuts are travel expenses, meeting expenses, advertisement, construction of
government office buildings and the procurement of operational vehicles, among others. These measures, however,
will not be applied to the education budget and budgets financed by (i) loans and grants and (ii) Non-Tax Income
of Public Service Agency. With approval from the House of Representatives (Dewan Perwakilan Rakyat (DPR)),
the budget savings target has been revised to Rp43 trillion in the Revised 2014 Budget.

Changes to the Negative Investment List

The Government of Indonesia enacted the Negative Investment List under the New Investment Law No. 25
of 2007 to provide a clearer and more detailed list of business activities that are conditionally open to foreign
investors and stakeholders, subject to the satisfaction of certain conditions relating to, among others, partnership
arrangements, capital ownership, location, qualification for special licenses or permits and small and medium-
sized enterprises. The Negative Investment List sets out business sectors that are closed to foreign investment
and business sectors that are open to foreign investment subject to certain conditions, including limits on the
percentage of foreign capital ownership.

The latest revision of the Negative Investment List was ratified on April 24, 2014 with the enactment of
Presidential Regulation No. 39 of 2014 on the List of Business Fields Closed to Investment and Business Fields
Open with Conditions to Investment. The objectives of these revisions were to increase investment in Indonesia
and to implement Indonesias commitment to the Asean Economic Community (AEC).

In revising the Negative Investment List, the Government also aims to: (i) prioritize the national interest and
improve national competitiveness; (ii) maintain sustainable economic development and anticipate the impact of a
global economic slowdown by increasing both domestic and foreign investment; and (iii) simplify investment
regulations and provide legal certainty to investors. The legal certainty is provided by Article 3 which asserts that
business fields not listed in appendices one and two to Article 1 and Article 2 of Presidential Regulation No. 39
of 2014 are open to investment without conditions.

In this revision, 58 additional business sectors have been opened up to foreign direct investment, including:
(i) port facilities under a public private partnership (PPP) scheme (including building, piers, container delay
terminals, liquid bulk terminals, dry bulk terminals, and Ro-Ro terminals); (ii) terminal construction; (iii) power

21
plants under PPP schemes (power plants above 10MW, electric power transmission and electricity distribution);
(iv) the pharmaceutical industry; and (v) advertising. In addition, there are fewer business sectors closed for
foreign direct investment, which primarily include those businesses producing goods/services that are:
(a) prohibited by Indonesian law; (b) dangerous; (c) polluting; and (d) of strategic importance for national
security and/or heritage reasons.

The list of business fields closed to investment include, but are not limited to, captivity of endangered fish,
extraction of natural coral reefs to be used in construction materials, hazardous chemical industries, manufacture
of alcoholic beverages, and gambling and casinos.

Foreign Currency Withdrawals

On May 14, 2014, Bank Indonesia issued Regulation No. 16/10/PBI/2014 concerning Receipt of Export
Proceeds and Withdrawal of Foreign Exchange from External Debt (Regulation No. 16/10). This new regulation
replaced Bank Indonesia Regulation No. 13/22/PBI/2011 concerning Compulsory Reporting on Withdrawal of
Foreign Exchange from External Debt and No. 14/25/PBI/2012 concerning receipt of Export Proceeds and
Withdrawal of Foreign Exchange from External Debt. This regulation enables Bank Indonesia to monitor receipt
of foreign exchange export proceeds and the withdrawal of foreign exchange debt through bank institutions to
optimize the use of foreign exchange to create a healthier financial market and to maintain the stability of the
Rupiah.

Under Regulation No. 16/10, all export proceeds including those proceeds received from the export of
mineral commodities, must be received through a foreign exchange bank, which is a bank registered with Bank
Indonesia to carry out banking activities using foreign exchange in Indonesia. This requirement, however, shall
not be applicable to the Governments entitlement of export proceeds or export proceeds in cash received in
Indonesia. In principle, all export proceeds must be received within three months after registration of the
notification on export of goods. Exporters shall report to their foreign exchange bank the export proceeds
information contained in the notification of export of goods.

Flow of Foreign Exchange System and Exchange Rate System

Bank Indonesia Regulation No. 14/21/PBI/2012 (Regulation 14/21) dated December 21, 2012 on Foreign
Exchange Activity Reporting provides that an Indonesian resident may freely hold and use foreign currency in
the Republic of Indonesia. The transfer of foreign exchange to and from abroad is, however, subject to the
disclosure and reporting obligation to Bank Indonesia.

This regulation became effective on January 1, 2013, revoked the previous foreign exchange regulations,
namely Bank Indonesia Regulation No. 13/15/PBI/2011 dated June 23, 2011 as amended by Bank Indonesia
Regulation No. 14/4/PBI/2012 dated June 7, 2012 concerning Monitoring of Foreign Exchange Traffic Activities
of Non-Bank Institutions. According to Regulation 14/21, the following parties that conduct foreign exchange
traffic activities are obligated to report their foreign exchange traffic activities to Bank Indonesia: (i) based on
type of business, including (a) financial institutions (bank or non-bank financial institutions) or (b) non-financial
institutions; and (ii) based on its business ownership, including (a) state-owned-enterprises; (b) regionally owned
enterprises; (c) private companies; (d) other entities; or (e) individuals.

The reporting obligations include, among other things, the required underlying and supporting
documentation and the type of the reporting party (reporting party threshold). The regulation also provides for
administrative sanctions for any violation of the provisions in the regulation.

Single Presence Ownership Regulation

Bank Indonesia issued Bank Indonesia Regulation No. 14/24/PBI/2012 concerning Single Presence
Ownership in Indonesian Banks on December 26, 2012 (Regulation No. 14/24). Bank Indonesia determined that
a controlling shareholder is an individual and/or legal entity and/or group of businesses that either owns 25.0% or
more of the banks shares with valid voting rights or one which owns less than 25.0% of the banks shares with
valid voting rights but which can be proven to have direct or indirect control over the bank. A controlling
shareholder in more than one bank that is not exempt under Regulation No. 14/24 must comply with the
regulation by either: (i) merging or consolidating the controlled banks; (ii) establishing a bank holding company;
or (iii) establishing a holding function in a bank.

22
 Under the single presence ownership policy, no party is allowed to be a controlling shareholder in more than
one conventional or Sharia bank. However, a shareholder is exempted from the single presence ownership policy
if it is a shareholder of: (i) two banks with different principles of banking activities with either one being a
conventional or a Sharia bank; or (ii) two banks with one of them being a joint venture bank between an
Indonesian and a non-Indonesian bank.

A non-complying controlling shareholder can be banned from controlling a bank and from owning more
than 10.0% of shares with valid voting rights in such bank. The excess shares (if any) will have to be transferred
at least one year after the lapse of the period reserved to comply with the Regulation No. 14/24. A shareholder
who violates the Regulation No. 14/24 may be restricted from acting as a controlling shareholder in Indonesian
banks for 20 years.

Bank Minimum Capital Requirements

Bank Indonesia issued Bank Indonesia Regulation No. 15/12/PBI/2013 concerning Bank Minimum Capital
Requirement on December 12, 2013, in order to harmonize Indonesian bank capital requirements with
international standards and to anticipate the dynamics of the global economy and financial system by allocating
capital with financial institutions maintained by branch offices of non-Indonesian banks.

Banks are required to maintain minimum capital in line with their respective risk profiles in order to be able
to absorb potential losses resulting from credit risk, market risk, operational risk, liquidity risk and other material
risks. Banks are required to maintain a minimum of: (i) 8.0% of risk weighted assets for banks with a level one
risk profile; (ii) 9.0% to 10.0% of risk weighted assets for banks with a level two risk profile; (iii) 10.0% to
11.0% of risk weighted assets for banks with a level three risk profile; and (iv) 11.0% to 14.0% of risk weighted
assets for banks with a level four or five risk profile.

In addition to the above-mentioned requirements, Bank Indonesia Regulation No. 15/12/PBI/2013

concerning Bank Minimum Capital Requirement also introduces a new obligation for certain commercial banks
to provide additional funds, above the minimum capital requirement, if Bank Indonesia considers that more
capital is required for such banks to deal with potential losses. Such additional funds will serve as a buffer
against certain economic and financial risks. The capital buffers are: Capital Conservation Buffer (2.5% of the
Risk Weighted Assets (ATMR)), Countercyclical Buffer (0%-2.5% of ATMR), and/or Capital Surcharge for
Domestic Systemically Important Bank (D-SIB) (1.0%-2.5% of ATMR).

Each bank should have and implement an Internal Capacity Adequacy Assessment Process (ICAAP) to
calculate the minimum capital that it should maintain in line with its risk profile. ICAAP consists of: (i) active
supervision of the Board of Commissioners and Board of Directors; (ii) capital adequacy assessment;
(iii) monitoring and reporting; and (iv) implementing internal controls. ICAAP will be reviewed by Bank
Indonesia through a Supervisory Review and Evaluation Process (SREP) that may result in Bank Indonesia
requiring a bank whose minimum capital adequacy is not in line with the risk profile to issue additional capital,
improve risk management process quality and/or lower risk exposure. In cases where Bank Indonesia considers
that there is a likelihood of a banks capital decreasing below the minimum capital requirement, SREP also
enables it to limit certain banking activities, prevent it from opening new offices and/or limit capital distribution
of the bank.

As of December 2013, branch offices of foreign banks were obliged to maintain Capital Equivalency
Maintained Assets (CEMA) equal to at least 8.0% of their total liabilities. If a branch office of a foreign bank is
required to maintain less than Rp1 trillion in CEMA, it will have until December 31, 2017 to comply with this
requirement.

Bank Indonesia Regulation Update concerning Consumer Protection in Payment System

Bank Indonesia issued Bank Indonesia Regulation No. 16/1/PBI/2014 on Consumer Protection in Payment
Services System on January 16, 2014. This regulation aims to strengthen the regulatory regime in respect of
consumer protection with regards to payment services systems, as well as to aid the understanding of individual
consumers who use the payment services systems of their rights and obligations in utilizing the payment services
systems of banks and non-bank institutions authorized by Bank Indonesia to carry out such payment services
system activities which include, among others, fund transfers, cashless payment and electronic money. In
protecting consumers, such banks and non bank institutions are required to, among others, establish and
implement a mechanism for handling consumer complaints, establish a task force to handle and settle consumer
complaints and to educate consumers about the implementation of consumer protection in respect of their rights
with regards to payment services systems.

23
OJK Regulation concerning Consumer Protection in the Financial Services Sector
On July 26, 2013, the OJK issued its first regulation, Regulation No. 1/POJK 07/2013 concerning Consumer
Protection in the Financial Services Sector. The purpose of this regulation is to implement the provisions of
Article 31 of Law No. 21 of 2011 on the Financial Services Authority, which states that further provisions
relating to consumer protection are within the ambit of OJKs regulatory authority. Under Regulation
No. 1/POJK 07/2013, consumer protection encompasses five main principles: transparency, fair treatment,
reliability, confidentiality and security of consumer data/information. In addition, the regulation provides for fast
and affordable handling of consumer complaints and the resolution of consumer disputes. The regulation, which
became effective on August 6, 2014, stipulates that financial services providers must ensure that the format of
their standard agreements conform to the provisions of the regulation by August 6, 2014. The regulation further
clarifies the role of OJK in relation to the resolution of disputes between consumers and financial services
providers and sets out OJKs supervisory authority over financial services providers and their compliance with
the provisions of the regulation.

OJK Regulation Update concerning the repurchase of shares issued by public companies when market
conditions are fluctuating significantly
On August 23, 2013, OJK issued Regulation No. 2/POJK.04/2013 concerning the repurchase of shares by
public companies when market conditions are fluctuating significantly. This regulation was issued to make it
easier for public companies to buy back their shares without breaching existing legislation.

OJK Regulation Update concerning Monthly Report of Non-Bank Financial Services Institution
On September 12, 2013, OJK issued Regulation No. 3/POJK.05/2013 concerning the Monthly Report of
Non-Bank Financial Services Institution. The regulation requires Non-Bank Financial Services Institutions to
submit reports to OJK on a monthly basis. The regulation was issued to permit OJK to obtain the latest
information about Non-Bank Financial Services Institutions (as defined in the aforementioned regulation) to
enable faster decision making. As a follow-up to the issuance of No. 3/POJK.05/2013, OJK issued 15 Circulars
which set out the format of monthly reports and the procedures for the submission of reports for each Non-Bank
Financial Services Institution.

OJK Regulation Update concerning Fit and Proper Test of Non-Bank Financial Services Institution
On December 23, 2013, OJK issued Regulation No. 4/POJK.05/2013 concerning Fit and Proper Test for
Key Persons of Insurance Companies, Pension Funds, Finance Companies, and Guarantee Companies. This
regulation requires that key persons (directors, board of commissioners, controlling shareholders, Sharia
supervisory board members, foreign employees and experts) satisfy certain requirements designed to ensure that
they are fit and proper persons for the relevant position.

OJK Regulation Update concerning Supervision of Social Security Agency by OJK

On December 31, 2013, OJK issued Regulation No. 5/POJK.05/2013 concerning Supervision of Social
Security Agency by OJK. The regulation sets out the scope of supervision of the Social Security Agency by OJK,
including: financial soundness, proper corporate governance, investment management, risk management,
disclosure, consumer protection and other aspects that constitute the functions, duties and authority of OJK based
on the prevailing laws and regulations.

OJK Regulation Update concerning Good Corporate Governance for Insurance Companies
On March 28, 2014, OJK issued Regulation No. 2/POJK.05/2014 concerning Good Corporate Governance
for Insurance Companies, which was promulgated and became effective as of April 8, 2014. This regulation
includes provisions setting out: the minimum number of directors, commissioners and independent commissions,
the duties and scope of authority of such directors and commissions, and the requirements for compliance
directors insurance companies. The regulation aims to introduce good corporate governance to insurance
companies in Indonesia in order to allow them to compete at national, regional and international levels.

OJK Regulation Update regarding Guarantee Companies

On April 7, 2014, OJK issued three regulations regarding Guarantee Companies (all of which became
effective as of April 8, 2014), which include: Regulation No. 5/POJK.05/2014 concerning the Licensing and

24
Institution of Guarantee Companies, Regulation No. 6/POJK.05/2014 concerning Business of Guarantee
Companies and Regulation No. 7/POJK.07/2014 concerning the Examination of Guarantee Companies. The
regulations were issued to support the development of Guarantee Companies while maintaining their financial
soundness.

OJK Circular Letter Update On Mutual Funds

On April 24, 2014, OJK issued Circular Letter Number 7/SEOJK.04/2014 on the Implementation of Face to
Face Meetings to Allow the Opening of Mutual Fund Accounts through an Electronic System, and the Electronic
Subscription and Redemption of Mutual Funds.

OJK Regulation Update concerning Winding-Up and Liquidation of Pension Fund

On July 15, 2014, OJK issued Regulation No. 9/POJK.05/2014 concerning Winding-Up and Liquidation of
Pension Fund. This regulation includes provisions concerning, among others, the reasons for winding-up pension
funds, requirements and procedures for winding-up pension funds, liquidation team, liquidation process of
pension funds, the responsibility of the employer and also supervision of pension funds liquidation process.

OJK Regulation Update regarding Risk Based Supervision of Non-Bank Financial Services Institution
On August 27, 2014, OJK issued two regulations regarding risk based supervision of non-bank financial
institutions, which include Regulation No. 10/POJK.05/2014 concerning Risk Assessment of Non-Bank
Financial Institution and Regulation No. 11/POJK.05/2014 concerning On-Site Supervision of Non-Bank
Financial Institution. Regulation No. 10/POJK.05/2014 sets out the scope of risk assessment of Non-Bank
Financial Institution by OJK, including: implementation of prudential risk management policies assessing
strategic risk, operational risk, assets and liabilities risk, organizational risk, corporate governance risk, financial
support risk, insurance risk and also financing risk. Particular emphasis is placed on industry specific risks for
Non-Bank Financial Institutions operating in that industry, such as insurance risk for insurance and reinsurance
companies and financing risk for finance companies. Regulation No. 11/POJK.05/2014 sets out the scope of on-
site supervision of the Non-Bank Financial Institution by OJK, including details concerning: frequency of on-site
supervision, auditors, and the supervision of shareholders, subsidiaries and other parties related to non-bank
financial institutions.

OJK Regulation Update regarding Microfinance Institution

On October 31, 2014, OJK issued three regulations regarding microfinance institutions, which include:
Regulation No. 12/POJK.05/2014 concerning the Business Licensing of Microfinance Institutions, Regulation
No. 13/POJK.05/2014 concerning the Provision and Business of Microfinance Institutions and Regulation
No. 14/POJK.05/2014 concerning the Regulation and Supervision of Microfinance Institutions. These regulations
provide further technical implementing rules, guidance and supervision of microfinance institutions as mandated
by Law No. 1 of 2013, as set out in the FSA Rules. The new regulations should be established not more than two
years after the enactment of the Law No. 1 of 2013. These regulations also provide guidance on licensing
requirements, capital, institutional, business administration, prudential, reporting, examination, in addition to the
relevant provisions on the confidentiality of depositors and customer deposits.

Government Regulation on Category and Tariff of Non-Tax State Revenue for National Archive of Republic
of Indonesia
On July 23, 2014, the Government issued Government Regulation No. 63 of 2014 on Category and Tariff of
Non-Tax State Revenue for National Archive of Republic of Indonesia to revoke Government Regulation No. 42
of 2005 to adjust the prevailing category and tariff of non-tax state revenue for the national archive.

Government Regulation on Non-Tax State Revenue related to Nuclear Power Energy

On July 7, 2014 the Government issued Government Regulation No. 56 of 2014 on Non-Tax State Revenue
Category and Tariff with Respect to Category and Tariff of Non-Tax Revenue related to Nuclear Energy. The
non-tax revenue category consists of (i) utilization of ion radiated resources, and development, operation, and
decommissioning of nuclear installations, (ii) license issuance, (iii) academic tests for installation officers,
(iv) training and education, and (v) utilization of the training and education hall. This regulation revoked
Government Regulation No. 27 of 2009 on Category and Tariff of Non-Tax State Revenue related to Nuclear
Energy.

25
Government Regulation on Expansion of Working Opportunity
In order to increase employment in accordance with Manpower Law Number 13 of 2003, former President
Yudhoyono, on May 8, 2013, issued Government Regulation No. 33 of 2013 on Expansion of Working
Opportunity. This regulation reflected an effort to create new areas of work and to develop existing areas of work
through employee-employer relationships and entrepreneurial programs. The Government provided various
forms of assistance (which, among others, encompassed tax relief and infrastructure support) to encourage
employers to create jobs for employees while also creating and developing productive and sustainable working
opportunities through entrepreneurial programs, technology and voluntary work.

Update on Regulation on Income Tax for Taxpayers with Certain Amount of Gross Income
On June 13, 2013, the Government issued Government Regulation No. 46 of 2013 which became effective
as of July 1, 2013 (GR 46 of 2013). Under GR 46 of 2013, individual and corporate taxpayers (which are not a
permanent establishment) who receive cumulative gross income from business activities (excluding services in
relation to independent work) in an amount not exceeding Rp4.8 billion per tax year, shall only be subject to a
monthly payable 1.0% final income tax tariff calculated on the relevant months gross income. Should gross
income per tax year exceed the Rp4.8 billion threshold, income relating to the subsequent tax year will be taxed
according to the income tax tariff applicable under the prevailing tax income law.

The income tax scheme introduced under GR 46 of 2013 is not applicable to those individual taxpayers who
in conducting their business: (i) utilize equipment, tools or infrastructure that can be assembled and dismantled;
and (ii) occupy part or the whole of a designated public area that is not designated as a commercial area. The
income tax scheme under GR 46 of 2013 is also not applicable to those corporate taxpayers that have not
commenced commercial operations or those which in the first tax year after commencement have gross income
exceeding Rp4.8 billion.

This income tax tariff is not applicable to: (i) individual taxpayers who carry on business activities in
trading and/or perform services in a business capacity using a temporary and/or moveable premise in a public
area not designated as a commercial area; and (ii) institutional taxpayers who are not operating commercially or
which, in the year after commencing commercial operations, record gross income in excess of Rp4.8 billion per
tax year.

Presidental Regulation on Micro and Macro Business Licenses

On September 15, 2014, the Government issued Presidential Regulation No. 98 of 2014 on Micro and
Macro Licenses with the aim of simplifying the process for macro and micro business entrepreneurs obtaining
licenses by providing a one-stop service and delegating the authority for license processing to the district or city
governments. The purpose of the regulations is to achieve legal certainty and protection in obtaining the licenses
and to provide macro and micro entrepreneurs with easy access to bank or non-bank financing, and to also
empower local governments and other institutions.

Bank Indonesia Requirement to use JISDOR

On May 15, 2013, Bank Indonesia issued the Circular Letter No. 15/19/DPM concerning the second
amendment of Bank Indonesia Circular Letter No. 10/48/DPD on Foreign Currency Transactions against the
Rupiah, which became effective as of May 20, 2013. Under this Circular Letter, should a bank enter into a
foreign currency transaction referencing the Rupiah and the relevant contract provides for a spot rate for
settlement on the due date, such bank is required to use the Jakarta Interbank Spot Dollar Rate (JISDOR) issued
by Bank Indonesia as the relevant reference rate. JISDOR represents the U.S. dollar spot price against Rupiah on
interbank transactions in both the domestic and the international market and is reported through the Monitoring
System of Foreign Currency Transaction against Rupiah. JISDOR is issued every business day at 10am Western
Indonesia Time on the official website of Bank Indonesia and through other selected media.

Bank Indonesia Regulation on Foreign Exchange Activity Reporting

On April 29, 2013, Bank Indonesia issued Circular Letter No. 15/16/DInt on Foreign Exchange Activity
Reporting in the Form of Offshore Loan Realization and Position of Offshore Loans (Circular No. 15/16) and
Circular Letter No. 15/17/DInt on Foreign Exchange Activity Reporting relating to Offshore Loan Plans,
Amendment to Offshore Loan Plans and Financial Information (Circular No. 15/17).

26
 Circular No. 15/16 became effective on April 29, 2013 and was enacted to replace Circular Letter
No. 13/1/DInt on Foreign Offshore Loan Reporting Obligations (Circular No. 13/1). Circular No. 13/1 was
revoked and declared inapplicable based on the July 2013 data which was published in August 2013. Circular
No. 15/16 sets out the technical procedures for foreign exchange activity reporting relating to realizations and
positions of offshore loans. Circular No. 15/16 also sets forth sanctions for non-compliance.

Circular No. 15/17 became effective as of April 29, 2013 and was enacted to replace Circular Letter
No. 12/37 dated December 23, 2010 on Procedures to Report on Offshore Loans and Financial Indicator Format
(Circular No. 12/37). Circular No. 12/37 was revoked on August 1, 2013. Circular No. 15/17 sets out the
technical procedures for foreign exchange activity reporting relating to offshore loan plans, amendments to
offshore loan plans and financial information. Circular No. 15/17 also sets forth sanctions for non-compliance.

On January 10, 2014 Bank Indonesia issued Circular Letter No. 16/1/DKSP on On-Line Reporting on Fund
Transfer Administration by Non-Bank Indonesian Legal Entities. Such monthly reports are to include data on
fund transfer activities from and to Indonesia and within Indonesia.

OJK Board of Commissioners Decree on List of Sharia Securities

In connection with the periodic (semi-annual) review by OJK of the financial reports of issuers and public
companies for the year ended December 31, 2012, the Board of Commissioners of OJK, on May 24, 2013, issued
Kep-25/D.04/2013 on List of Sharia Securities setting out a list of Sharia securities, effective as of June 1, 2013,
consisting of 302 issuers shares and other Sharia securities as well as sovereign sukuk which have obtained an
effective registration statement. On November 19, 2013, the Board of Commissioners of OJK issued Kep-
60/D.04/2013 with regard to the updated Sharia Securities List, effective as of December 1, 2013, to replace Kep-
25/D.04/2013. As of June 1, 2014, the Sharia Securities List contained 322 issuers shares and other Sharia
securities.

Updates on Straight Through Processing and Risk Management

The concept of Straight Through Processing (STP) and Risk Management has been introduced to the
Indonesian capital markets. STP is an integrated system that automates all processes such as, among others,
executing transactions, clearing, confirmation/affirmation and settlement without manual intervention and/or
re-entry of data.

In 2012, the following six projects were initiated to develop STP in Indonesia:
i. development of a pre-deal checks system (Risk Validator);
ii. implementation of trading IDs on the IDX trading systems;
iii. development of a risk engine;
iv. roll out system and task with sustainable development;
v. development of clearing based on single investor identities and securities; and
vi. integration with back office participants.

Updates on Data Warehouse and Information Systems

OJK developed a data warehouse and information system to better integrate data from the capital markets
and improve the quality of supervision within the capital markets. OJK also developed a capital markets
supervision dashboard, which provides relevant data and information regarding investors activities.

Updates on Sharia Capital Markets

OJK prepared a roadmap to develop a Sharia-compliant capital market over the next five years. OJK
finalized amendments to regulations involving a Sharia-compliant capital market, specifically, regulation number
IX.A.13 on Sharia Securities Issuances at the end of 2014.

In order to develop a Sharia-compliant capital market, OJK has implemented an online trading system
(SOTS). There are currently eight securities companies serving SOTS. OJK has also conducted training,
education and promotion of a Sharia-compliant capital market in universities and Islamic boarding schools
nationwide.

27
 To promote the growth of a Sharia-compliant capital market industry, the Government has reduced the
issuance fee for sukuk issuances and equalized the issuance tax applicable to Sharia securities to that for
conventional securities.

Updates on Delivery of Free of Payment Reports

The Indonesian Central Securities Depository (C-BEST) implemented the Over the Counter-Free of
Payment Instruction to settle free of payment transactions, as defined in BAPEPAM Regulation No. III.A.10.
This implementation regulates the transfers of securities between members of stock exchanges and members of
clearing companies.

Minister of Finance Regulation Update on Value Added Tax and Sales Tax on Luxury Goods
On April 2, 2013, the Minister of Finance issued the Minister of Finance Regulation No. 70/PMK.011/2013
on the Third Amendment of the Minister of Finance Decree No. 231/KMK.03/2001 on the Treatment of Value
Added Tax and Sales Tax and on the Import of Taxable Goods Exempted from Entry Customs (PMK No. 70 of
2013) to support the increase in domestic production of oil and natural gas. Under PMK No. 70 of 2013, the
Government provides for the exemption of value added tax and sales tax on luxury goods (VAT Luxury Goods)
including, among others, certain goods used for the upstream exploration of oil, natural gas and geothermals,
goods used in the upstream exploitation of oil and natural gas, goods imported by central or regional government
for public purposes and goods used for research and development.

Government Regulation on Motor Vehicles subject to Sales Tax on Luxury Goods

On May 23, 2013, the Government issued Government Regulation No. 41 of 2013 on Motor Vehicles
subject to Sales Tax on Luxury Goods (GR No. 41 of 2013) to encourage the use of energy efficient and
environmentally friendly motor vehicles and to support the increase in domestic motor vehicle production
through an energy efficient and low price motor vehicle program. Under GR No. 41 of 2013, the Government
calculates sales tax on motor vehicles based on a percentage ranging from 10.0% to 75.0% of the relevant sale
price subject to, among other things, cylinder capacity, total weight and the type of motor vehicle. With the
enactment of GR No. 22 of 2014, which is an amendment to GR No. 41 of 2013, as of December 31, 2014, the
sales tax rates range from 10.0% to 125.0%.

Under GR No. 41 of 2013 motor vehicles with a diesel or petrol engine, dual petrol gas engine (converter kit
CNG/LGV), bio fuel engine, hybrid engine or a CNG/LGV which consumes fuel at a rate between 20
kilometers per liter and 28 kilometers per liter will be subject to sales tax calculated on 75.0% of the sale price.
Such engines which consume fuel at a rate in excess of 28 kilometers per liter will be subject to sales tax
calculated on 50.0% of the sale price. This sales tax exemption is also applicable to motor vehicles with a
cylinder capacity of less than 1,500cc and which consume fuel at a rate of at least 20 kilometers per liter.

Minister of Finance Regulation on Customs Registration

On March 25, 2014, the Minister of Finance issued Minister of Finance Regulation No. 59/PMK
No. 04/2014 on Customs Registration. This regulation aims to increase services available to the public in
anticipation of the use of information technology in customs activities. Under this regulation, customs
registration applications by service importers, exporters, transporters and custom workers shall be submitted
electronically. Approved applicants will receive a Customs Identification Number (Nomor Identitas Kepabeanan
or NIK) to access or connect with the customs system either electronically or manually. NIK will be required to
enable NIK holders to carry out customs obligations. This regulation also provides an exclusion from NIK for
(i) importers carrying out customs obligations in relation to, among others: goods of foreign countries
representatives and their officers designated for Indonesia; goods of international agencies and their officers
designated for Indonesia; personal belongings of passengers, transport crew and delivered goods; goods of
central or regional government intended for public purpose use; goods from grants for purposes of public
religious activities, charity, social or cultural purposes, or natural disaster prevention; and (ii) exporters carrying
out customs obligations in relation to, among others: souvenirs; goods for sampling purposes; goods for research
purposes, goods of foreign countries representatives and international agencies; goods for purposes of public
religious activities, social, education and culture or sport.

BKPM Guidelines and Mechanisms for Investment Licenses and Non-Licenses

On April 8, 2013, BKPM issued a new regulation on investment licensing and other procedures, covering
both domestic investment and foreign direct investment. The new rules are set out in the Chairman of BKPMs

28
Regulation No. 5 of 2013 on Guidelines and Mechanisms for Investment Licenses and Non-Licenses (BKPM
Regulation 5/2013) which was formally enacted on April 12, 2013 and came into effect on May 27, 2013.
BKPM Regulation 5/2013 revoked the decision of the Chairman of BKPMs Regulation No. 19/SK/1991 on
Venture Company Capital Shareholding in Foreign and Domestic Investment Companies, dated December 9,
1991 and Chairman of BKPM Regulation No. 12 of 2009 on Guidelines and Procedures for Investment
Applications, dated December 23, 2009.

BKPM Regulation 5/2013 was enacted to simplify and expedite the process of capital investment approval,
obtaining and the relevant licenses and other facilities and services by, among others, simplifying the application
forms and providing definite time frames for the completion of applications for licensing and non-licensing
facilities.

BKPMs Regulation No. 12 of 2013 (BKPM Regulation 12/2013), which came into force on September 18,
2013, was enacted to amend certain provisions under BKPM Regulation 5/2013, which governs the restrictions
on ownership by venture capital companies. The regulation also stipulates that all of the license and non-license
applications must be conducted by the companys director or chairperson.

BKPM Regulation on the Implementation of Integrated Investment Services in BKPM

Chairman of BKPM Regulation No. 7 of 2013, dated June 13, 2013, was enacted to increase the quality of
license and non-license services related to investment by providing simplified, fast, accurate, transparent and
accountable services. The regulation sets forth in detail the mechanisms required for implementing a one-stop
integrated service, including, inter alia, the allocation and qualification of human resources, the facilities
required and the use of an electronic/online system. The One Stop Integrated Services for investment (OSSI)
launched in 2009 and as of December 31, 2013 had been implemented in 33 provinces, 336 municipalities and
93 cities in Indonesia. To support the one-stop service, BKPM in 2010 launched Electronic Information and
Licensing Services System (SPIPISE) which expedites the process of obtaining an investment license. As of
December 31, 2013, the system had been adopted by 33 provinces, 126 municipalities and 41 cities in Indonesia.
In addition, to improve the investment licensing service and to increase transparency, BKPM also launched a
tracking system in 2012 to assist investors in monitoring their application process.

To improve the investment services, in December 2013 BKPM introduced an online system procedure for
applying to obtain duty exemption for capital goods and raw materials. Furthermore, in April 2014, BKPM also
introduced an online application system for Principle License applications for companies that have not obtained
Indonesian legal entity status. On June 1, 2014, online applications became mandatory for all companies that
have not obtained Indonesian legal entity status.

On December 1, 2014, BKPM implemented an on-line registration system for business licenses. This online
system provides accountable, fast and transparent investment services. Additionally, since December 2013
BKPM has had SNI ISO 9001:2008 (Quality Management System) certification.

Law No. 1 of 2013 on Microfinance Institutions

Law No. 1 of 2013 on Microfinance Institutions (Law No. 1 of 2013) was issued on January 8, 2013, to
bridge the gap between microfinance supply and demand by providing a legal basis for microfinance operations.
The law will become effective two years after its issuance on January 8, 2015.

Under the law, microfinance institutions must be established as either limited liability companies or
cooperatives. When established as a limited liability company, 60.0% of the microfinance institutions shares
must be owned by either a regional government or a region-owned company. The remaining 40.0% of shares can
be owned by an Indonesian citizen or a cooperative, with individual ownership being capped at 20.0%.

Microfinance institutions are authorized to provide savings and financing services, and business
development consultancy to both their members and the general public. However, under the law, they are not
permitted to receive gyro savings or participate in payments systems, participate in foreign exchange trading,
serve as insurance underwriters, act as guarantors, or lend to other microfinance institutions (except for liquidity
or insolvency assistance of other microfinance institutions within the same municipality). The law also provides
an optional deposit guarantee scheme for microfinance institutions.

Microfinance institutions are supervised and managed by the Financial Services Authority of Indonesia.

29
Bank Indonesia Regulation No. 15/1/PBI/2013 on Credit Bureau (Lembaga Pengelola Informasi Perkreditan)
On February 18, 2013, Bank Indonesia issued Regulation No. 15/1/PBI/2013 (BI Regulation No. 1/2013)
on the Credit Bureau (LPIP) to assist financial institutions with managing risks and developing comprehensive
credit management systems. The business activities of LPIPs involve the collecting and processing of credit data
and/or other data to produce credit information. BI Regulation No. 1/2013 requires any institution that gathers or
processes such information to obtain an operational license from Bank Indonesia. LPIPs may obtain the credit
information and other information from Bank Indonesia, financial institutions, and other non-financial
institutions. LPIPs have the obligation to, among others, ensure the accuracy, currency, security and
confidentiality of data and to have a reliable system to collect such information.

As a follow up to BI Regulation No. 1/2013, Bank Indonesia issued Circular No. 15/49/DPKL on Credit
Bureau (LPIP), which became effective as of December 5, 2013.

Recent Developments
2014 Realization Figures
On January 5, 2015, the Ministry of Finance published the update on the Republics economic performance
during the year ended December 31, 2014. The results indicate the following:
real GDP growth of 5.1% for the year ended December 31, 2014, compared to 5.5% in the Revised
2014 Budget;
average inflation rate of 8.4% for the year ended December 31, 2014, compared to 5.3% in the Revised
2014 Budget;
interest rate on three-month short-term SPN of 5.8% for the year 2014, compared to 6% in the Revised
2014 Budget;
average exchange rate of Rp11,878 to U.S.$1 for the year ended December 31, 2014, compared to
Rp11,600 to U.S.$1 in the Revised 2014 Budget;
average oil production by the Republic of 794,000 barrels of oil per day for year 2014, compared to
818,000 barrels of oil per day in the Revised 2014 Budget;
average gas production by the Republic of 1.224 million barrels of gas per day for year 2014, compared
to 1.2 million barrels of gas per day in the Revised 2014 Budget;
average ICP of U.S.$97 per barrel for year 2014, compared to U.S.$105 per barrel in the Revised 2014
Budget;
tax revenues for the year of Rp1,143.3 trillion; and
non-tax revenues for the year of Rp390.7 trillion.

As of December 31, 2014, the realized total expenditure in 2014 was Rp1,764.6 trillion, as compared to
Rp1,876.9 trillion in the Revised 2014 Budget. The realized 2014 total revenue (including grants) was Rp1,537.2
trillion, as compared to Rp1,635.4 trillion in the Revised 2014 Budget. The realized 2014 deficit was Rp227.4
trillion, compared to Rp241.5 trillion in the Revised 2014 Budget. As a percentage of GDP, the realized fiscal
deficit was 2.3% of GDP in 2014, compared to 2.4% of projected GDP in the Revised 2014 Budget.

2013 Realization Figures

On January 4, 2014, the Ministry of Finance published the update on the Republics economic performance
during the year ended December 31, 2013. The results indicate the following:
real GDP growth of 5.8% for the year ended December 31, 2013, compared to 6.3% in the Revised
2013 Budget;
average inflation rate of 8.4% for the year ended December 31, 2013, compared to 7.2% in the Revised
2013 Budget;
interest rate on three-month short-term SPN of 4.5% for year 2013, compared to 5.0% in the Revised
2013 Budget;

30
 average exchange rate of Rp10,445 to U.S.$1 for the year ended December 31, 2013, compared to
Rp9,600 to U.S.$1 in the Revised 2013 Budget;
average oil production by the Republic of 825,000 barrels of oil per day for year 2013, compared to
840,000 barrels of oil per day in the Revised 2013 Budget;
average gas production by the Republic of 1.213 million barrels of gas per day for year 2013, compared
to 1.24 million barrels of gas per day in the Revised 2013 Budget;
average ICP of U.S.$106 per barrel for year 2013, compared to U.S.$108 per barrel in the Revised
2013 Budget;
tax revenues for the year of Rp1,077.3 trillion; and
non-tax revenues for the year of Rp354.2 trillion.

As of December 31, 2013, the realized total expenditure in 2013 was Rp1,639.8 trillion, as compared to
Rp1,726.2 trillion in the Revised 2013 Budget and Rp1,491.4 trillion in 2012. The realized 2013 total revenue
(including grants) was Rp1,437.0 trillion (equivalent to 15.8% of GDP) compared to Rp1,502.0 trillion
(equivalent to 15.9% of GDP) in the Revised 2013 Budget and Rp1,338.1 trillion (equivalent to 16.2% of GDP)
in 2012. The realized 2013 deficit was Rp202.8 trillion, compared to Rp224.2 trillion in the Revised 2013 Budget
and Rp153.3 trillion in 2012. As a percentage of GDP, the realized fiscal deficit was 2.2% of GDP in 2013,
compared to 2.4% of projected GDP in the Revised 2013 Budget and to the realized fiscal deficit of 1.86% of
GDP in 2012.

Debt Issuances
During 2014, the Government issued conventional debt securities and sukuk in the international capital
markets under this U.S.$30,000,000,000 Global Medium Term Note Program (Global Medium Term Note
Program) and its U.S.$5,000,000,000 Trust Certificate Issuance Program (Trust Certificate Issuance
Program). During 2013 and 2014, the Government also issued bonds and retail sukuk in the domestic capital
markets.

International Issuances
As of December 31, 2014, the Government had issued an aggregate of U.S.$4 billion and 1 billion in debt
securities and U.S.$1.5 billion in Sukuk in the international markets that remained outstanding.

On September 10, 2014, the Government issued through Perusahaan Penerbit SBSN Indonesia III, U.S.$1.5
billion 4.350% Sukuk due 2024 under its Trust Certificate Issuance Program. As of the date of this Offering
Circular, the total amount outstanding under the Trust Certificate Issuance Program is U.S.$4 billion.

On July 8, 2014, the Government made its debut issuance of Euro-denominated bonds in the international
market under its Global Medium Term Note Program of 1 billion 2.875% Notes due 2021. On January 7, 2014,
the Government issued two Series of Notes under its Global Medium Term Note Program comprising
U.S.$2 billion 5.875% Notes due 2024 and U.S.$2 billion 6.750% Notes due 2044. As of the date of this Offering
Circular, the total amount outstanding under the Global Medium Term Note Program was U.S.$19.75 billion and
1 billion.

Domestic Issuances
As of December 31, 2014, the Government had issued Rp342.17 trillion in debt securities in the domestic
market that remained outstanding.

In March 2014, the Government issued retail sukuk, called Sukuk Retail Indonesia, of approximately
Rp19.3 trillion to domestic investors at a coupon rate of 8.75% per annum with a maturity date of March 5, 2017.
The purpose of the Sukuk issuance was to finance the Revised 2014 Budget and widen the Governments
investor base.

The Government also introduced two new instruments for domestic investors. On March 13, 2014, the
Government issued U.S. dollar bonds in the domestic market of approximately U.S.$250 million at a coupon rate
of 3.50% per annum and with a maturity date of May 15, 2014. On May 30, 2014, the Government issued its first

31
retail savings bonds of 2014 with a base coupon rate of 8.75% per annum and adjusted quarterly by the
Indonesian Deposit Insurance Corporation (IDIC) rate (IDIC Rate) plus 125 basis points. These issuances were
undertaken to help fund the 2014 Budget and to improve the development of the domestic government bond
market through the diversification of domestic financing instruments and the expansion of the domestic investor
base.

Foreign Direct Investment

On October 17, 2014, BKPM announced that the realized investment for the third quarter of 2014 was
Rp119.9 trillion, an increase of 19.3% compared to the same period in 2013 (Rp100.5 trillion). This increase
marks the fourth consecutive quarter in which investment realization has exceeded Rp100 trillion. Furthermore,
the level of Domestic Direct Investment (DDI) realization amounted to Rp41.6 trillion, reaching 34.7% of the
total amount of Foreign Direct Investment (FDI) realization of Rp78.3 trillion.

The investment realization of DDI for the third quarter of 2014 was Rp41.6 trillion, an increase of 24.1%
compared to the same period in 2013. The realized FDI for the third quarter of 2014 was Rp78.3 trillion, an
increase of 16.8% compared to the same period in 2013.

DDI realization is based on five leading industrial sectors: Electricity, Gas and Water Supply
(Rp5.6 trillion); Real Estate, Industry Estate & Business Activities (Rp5.0 trillion); Transport, Storage &
Communication (Rp4.9 trillion); Non Metallic Mineral Industry (Rp4.7 trillion) and Chemical and
Pharmaceutical Industry (Rp5.6 trillion). All remaining sectors combined contributed Rp15.8 trillion or 38.1% of
total DDI realization.

FDI realization is based on five leading sectors: Transportation, Warehouse and Telecommunication
(U.S.$1.2 billion); Mining (U.S.$1.0 billion); Metal, Machinery & Electronic Industry (U.S.$0.7 billion); Motor
Vehicles & Other Transport Equipment Industry (U.S.$0.6 billion) and Chemical and Pharmaceutical Industry
(U.S.$1.0 billion). All remaining industrial sectors combined contributed U.S.$2.6 billion or 34.8% of total FDI
realization. The distribution of investment realization by location in the first quarter of 2014 demonstrates that
Java Islands portion of distribution is larger than that of any area outside Java Island. For the second quarter of
2014, the investment realization in Java Island was Rp69.1 trillion (59.5%) while investment realization outside
Java Island was Rp47.1 trillion (40.5%).

Based on the investment realization data for the period from June 2010 until September 2014, there was
significant growth in each quarter for DDI as well as FDI. The growth of both sectors highlights that investment
in Indonesia is currently on a sustainable path. The data of investment realization from June 2010 until
September 2014 demonstrates that there are more new investment projects compared to expansion projects.
Further, it reflects an increase in the capacity for investment products and increased diversification in terms of
the variety and types of industries and products.

Master Plan for Acceleration and Expansion of Indonesias Economic Development 2011-2025
On May 27, 2011, the Master Plan for Acceleration and Expansion of Indonesia Economic Development
2011-2025 (MP3EI) was unveiled, with the aim of creating a self-sufficient, advanced, just and prosperous
Indonesia. Pursuant to the MP3EI, six economic corridors have been identified as growth centers, with each
corridor specializing in economic activities in which it is believed to have a comparative advantage.
Sumatera corridor: this corridor will act as a production and processing center of natural resources,
cultivation, national food and energy.
Java corridor: this corridor will act as a driver for industrialization and services.
Kalimantan corridor: this corridor will act as a production and processing center of mining and energy
reserves.
Sulawesi corridor: this corridor will act as a production and processing center of agriculture, fisheries,
plantation, oil and gas and mining.
Bali and Nusa Tenggara corridor: this corridor will act as a gateway for tourism and food safety.
Papua and Kepulauan Maluku corridor: this corridor will act as a development center of food,
fisheries, energy and mining.

32
 In addition, the MP3EI divides the focus of development into eight main programs: (i) forestry; (ii) mining;
(iii) energy; (iv) industrial; (v) marine; (vi) tourism; (vii) foodcrops/livestock and; (viii) development of strategic
areas. The eight programs further divide into 22 main economic activities which are all geographically
concentrated along the six aforementioned corridors. The development of these six corridors is expected to
garner at least Rp4,000 trillion in investment in various projects within a 15-year period from 2011 through 2025.

In 2013, approximately 122 projects were launched as part of the MP3EI, requiring an estimated total
investment of Rp790.4 trillion. As of December 31, 2013, the total number of projects that had been launched as
part of the MP3EI between 2011 and 2013 was 366 with a total value of Rp829.2 trillion. Of these 365 projects,
the Government funded 97 projects valued at Rp131.7 trillion, state-owned companies funded 104 projects
valued at Rp212.8 trillion and the private sector funded 127 projects valued at Rp323.3 trillion. The remaining
38 projects were funded by public private partnerships and were valued at Rp162 trillion.

The largest of the projects launched in 2013 in each of the six corridors are as follows:
Papua and Kepulauan Maluku corridor: an underground mining project at PT Freeport Indonesias
block A area which is expected to require an investment of Rp149 trillion.
Java corridor: the development of a six lane elevated toll road in Jakarta, which is expected to require
an investment of Rp48 trillion.
Kalimantan corridor: Chevrons Indonesia Deepwater Development (IDD), which is related to
integrated infrastructure for mining and industry in Rapak & Ganal, and is expected to require an
investment of Rp70 trillion.
Sumatera corridor: the revitalization of a state-owned fertilizer producer, PT Pupuk Sriwijaya (Pusri),
which is expected to require an investment of Rp6.24 trillion (this project was launched in April 8,
2013).
Sulawesi corridor: the development of a nickel pig iron factory in Southeast Sulawesi, which is
expected to require an investment of Rp7.6 trillion.
Bali and Nusa Tenggara corridor: the development of the Benua bay, which is expected to require an
investment of Rp30 trillion.

As of September 30, 2014, 412 projects valued at Rp1,002.2 trillion had commenced under the MP3EI.
132 projects were planned for 2014 with a total value of Rp443.5 trillion. In the third quarter of 2014, only
40 new projects with a value of Rp94.48 trillion were launched due to land acquisition and licensing issues.

The largest of the projects launched in 2014 under MP3EI in each of the six corridors were as follows:
Papua and Kepulauan Maluku corridor: National Fiber Optic Backbone and Backhaul in Papua-
Kepulauan Maluku, which is expected to require a total investment of Rp2.5 trillion.
Java corridor: the development of the Java-Sumatra HVDC Interconnection System, which is expected
to require a total investment of Rp25.1 trillion.
Kalimantan corridor: the construction of the Pit Crushing Conveyor (four units) by PT. Adaro Energy
Tbk. in South Kalimantan, which is expected to require a total investment of Rp5.4 trillion.
Sumatera corridor: transmission of Sumatera 500 kVA, which is expected to require a total investment
of Rp80 trillion.
Sulawesi corridor: the development of PLTA Karama (450 mw), which is expected to require a total
investment of Rp6.5 trillion.
Bali and Nusa Tenggara corridor: the development of Tanjung Ringgit tourism zone, which is
expected to require a total investment of Rp5 trillion.

Economic Recession in Developed Markets and Government Responses

From mid-2007, there was a period of disruption and volatility in global capital and credit markets. Share
prices declined sharply globally and such declines, as well as substantial mark-to-market write downs of assets
by financial institutions of mortgage-related assets and credit default swaps and other derivative securities,
caused many financial institutions to seek new capital, merge with stronger and larger institutions or, in some
cases, fail.

33
 At the end of 2008,the United States, various European countries and Japan were all officially in economic
recession. This affected the developing markets, including Association of Southeast Asian Nations (ASEAN)
countries and the Republic. In November 2009, the government of the Emirate of Dubai, a member of the United
Arab Emirates, declared that it would not stand behind the debts of its investment vehicle, Dubai World, when
Dubai World requested a six-month standstill on its debt payments from creditors.

Throughout Asia, stock market indices declined sharply in October and November 2008 and Asian
currencies (excluding the Japanese yen) declined sharply against the U.S. dollar in October and November 2008.
During 2009, there were significant recoveries in asset prices in some markets, with some of the major
developing markets performing better than the more developed markets, but liquidity in the credit markets
continued to be significantly constrained. In 2010, this trend continued to a lesser extent with some geographic
variations. Recovery has been fragile and partially attributable to the effects of various government economic
stimulus efforts.

Governments, central banks and financial regulators in the United States and Europe have taken a number of
steps in response to the extraordinary conditions faced by financial institutions in their jurisdictions. These steps
include the partial or complete nationalization of major banks and other financial institutions (including Fannie
Mae and Freddie Mac in the United States), the orchestration of bank mergers or asset transfers, the guaranteeing
of bank deposits and interbank lending, the creation of a U.S.$700 billion Troubled Assets Relief Program
(TARP) by the United States Treasury to purchase mortgage-related and other assets from financial institutions,
the implementation of coordinated rate cuts and direct purchases of commercial paper. In August 2011, the
international credit rating of the United States was downgraded by Standard & Poors Ratings Services
(Standard & Poors) from AAA to AA+ with a negative outlook. Despite the downgrade, the United States
Congress allowed the Government to increase the public debt ceiling to avoid a technical default.

In Europe, a sovereign debt crisis began in 2009 with Greece and Portugal, which was followed by the
Republic of Ireland, Italy and Spain. Major international rating agencies downgraded the sovereign rating of such
countries, and the Eurozone debt crisis contributed to fears of contagion and turmoil in financial markets.
Surrounding European Union countries have provided assistance and aid to such countries and continue to do so,
and the European Commission has proposed policies to reduce the impact of the crisis in the region. In addition,
the U.S. Federal Reserve led a coordinated move with other central banks in November 2011 to increase liquidity
in the markets by lowering borrowing costs of the U.S. dollar. At the Euro Area Summit in June 2012, heads of
state or governments decided to establish a single banking supervisory mechanism run by the European Central
Bank, and once this mechanism is created, to provide the European Stability Mechanism (ESM) with the
possibility to inject funds into banks directly. Spains bank recapitalization would begin under current rules (i.e.,
funds are provided by the European Financial Stability Facility (EFSF) until the ESM becomes available) and
will then be transferred to the ESM without gaining seniority status. It was also agreed that the EFSF/ESM funds
can be used flexibly to buy bonds for member states of the European Union that respect their country-specific
recommendations and other commitments. These governments and regulators have proposed various measures
that aim to stimulate economic activity. The fiscal burden of rescue and stimulus programs has been significant
for governments in Europe, the United States and other countries and this burden may constrain their future
ability to resort to further fiscal measures to counteract the effects of the financial crisis.

The Republic and other ASEAN countries have been negatively affected, along with developing countries
globally, by the adverse financial and economic conditions in developed countries. The Republic responded to
these extraordinary conditions with the aim of maintaining economic stability and public confidence in the
Republics economy.

Although Indonesias financial services sector remains relatively unaffected by the fragility of global
financial markets and the ongoing Eurozone debt crisis, there can be no assurance that it will not be adversely
affected in the future. The Government has taken several measures to strengthen this sector, beginning with a
series of regulations including the following:
Government Regulation in lieu of Law (Perpu) No. 2 of 2008 on Second Amendment to Law No. 23
of 1999, later enacted as Law No. 6 of 2009 on the stipulation of Government Regulation in Lieu of
Law No. 2 of 2008 on the Second Amendment to Law No. 23 of 1999 on Bank Indonesia into Law
(Law No. 6 of 2009), authorizes Bank Indonesia to give short-term credit or financing based on Sharia
principles of up to 90 days to any bank, subject to certain criteria to be set by Bank Indonesia. A
beneficiary bank is required to give security of at least the value of such credit or financing.
Perpu No. 4 of 2008 on Financial System Safety Nets, which facilitates medium- to long-term liquidity
support for banks. This measure allows banks to apply for credit or financing from an emergency

34
 financing facility subject to criteria to be set by Bank Indonesia and approval by the Financial System
Stability Committee. In addition, some government funds have been deposited with state-owned banks
to increase liquidity in the banking system.
Perpu No. 3 of 2008 on Amendment to Law No. 24 of 2004 on IDIC, later enacted as Law No. 7 of
2009, which allows deposit insurance coverage to be adjusted as a pre-emptive measure to anticipate
potential bank runs which lead to financial crises. The prevailing requirements for adjustment in the
coverage are in response to high inflation rates for the past several years, threats of bank runs, and fully
covered depositors becoming less than 90.0% of depositors. Following the enactment of Perpu No. 3 of
2008, the Government issued Government Regulation No. 66 of 2008 on Deposit Insurance Coverage,
which increased the level of insured deposits from Rp100 million to Rp2 billion for each depositor in a
bank. The coverage provides full protection for approximately 99.87% of accounts in the Indonesia
banking sector and for approximately 46.2% of the total deposits as of March 31, 2014.
On October 6, 2008, the Capital Markets and Financial Institutions Supervisory Agency issued three
regulations relating to so-called capital market supporting professionals, two of which provide for
periodic reports to be submitted to Bapepam-LK by accountants and appraisers and the third of which
relates to professional standards and independence of appraisers in the conduct of capital markets
transactions.
In 2008, Bapepam-LK issued regulations relating to the fair market value of securities in investment
fund portfolios in the context of the global economic and financial crisis, revised disclosure regulations
applicable to securities companies to provide for more stringent disclosure of information and to
increase management accountability for the activities of securities companies and revised certain
regulations relating to Guidelines for Asset Backed Securities Collective Investment Contracts, to
ensure greater legal certainty in the conduct of securitization transactions and to protect the holders of
asset backed securities collective investment contracts. In addition, Bapepam-LK further issued new
regulations relating to the establishment of internal audit units for issuers and public companies and to
ensure more stringent risk management and better corporate governance practices. On November 25,
2009, Bapepam-LK amended the regulations concerning related parties transactions and transactions
involving conflicts of interest in order to protect unaffiliated and independent shareholders. Such
amendments require public companies and equity issuers to follow more stringent guidelines in
conducting transactions with affiliates, transactions involving conflicts of interest and transactions
involving potential financial loss to public companies and equity issuers. In 2014, OJK amended the
regulation on Collective Investment Contract-Private Equity with the aim of stimulating financing
within the real estate sector.
Since April 13, 2010, Bapepam-LK has required any share buy-backs to be carried out in compliance
with Law No. 40 of 2007 on Limited Liability Company (the Company Law), which allows buy-backs
of up to 10.0% of paid-up capital in public companies. The Company Law requires shareholders
approval for such buy-backs.
On May 31, 2011, Bapepam-LK amended certain regulations concerning acquisition of public
companies, voluntary tender offers, guidelines for management of protected mutual funds, secured
mutual funds and index mutual funds.
On July 5, 2011, Bapepam-LK amended the regulation concerning submission of periodic financial
statements of issuers or public companies. This amendment is in line with the revision of PSAK as a
result of IFRS convergence program.
On November 28, 2011, Bapepam-LK amended the regulation concerning material transactions and
change of core business activities. This regulation protects public shareholders by requiring the
disclosure of transactions with a value between 20.0% and 50.0% of the equity of public companies
and equity issuers and shareholders approval for transactions with a value of over 50.0% of the equity
of public companies and equity issuers.
Bapepam-LK Circular Letter Number SE-16/BL/2012 dated December 4, 2012 regarding Account
Opening Funds on Behalf of Each Customer as Implementation of Bapepam-LK Regulation
Number V.D.3 was issued on January 30, 2012. This circular builds on Bapepam-LK Regulation
Number V.D.3, Appendix of Bapepam-LK Chairman Decree Number KEP-548/BL/2010 dated
December 28, 2010 regarding the Internal Control of Securities Companies Conducting Business
Activities as Broker-Dealer. The circular supports the opening of bank accounts by securities
companies on behalf of customers and is intended to explain the liabilities and exemptions related to
these accounts.

35
 Bapepam-LK Circular Letter Number SE-02/BL/2012 dated January 30, 2012 regarding Additional
Explanation of Bapepam-LK Circular Number SE-07/BL/2011 and Validation of Net Adjusted
Working Capital (NAWC) Reporting as Implementation of Bapepam-LK Regulation Number V.D.5
was issued on January 30, 2012. This circular was issued in order to support the implementation of
Bapepam-LK Regulation Number V.D.5, Appendix of Bapepam-LK Chairman Decree Number KEP-
566/BL/2011. The purpose of the circular is to explain the Guidelines for Filling of Net Adjusted
Working Capital (NAWC) Forms of Securities Company. The circular requires securities companies to
report the NAWC correctly.
In line with the International Financial Reporting Standards convergence program, on June 25, 2012,
Bapepam-LK amended the regulation concerning the presentation and disclosure of financial
statements of issuers and public companies. This regulation adopts all relevant International Financial
Reporting Standards and Indonesian Accounting Standards (Pernyataan Standar Akuntansi Keuangan),
provides guidance for preparing financial statements, and increases quality and comparability of issuer
financial statements.
On June 25, 2012, Bapepam-LK amended Rule Number VIII.G.7 concerning Guidelines for the
Preparation of Financial Statements. In general, the amendment tailors the content of Financial
Accounting Standards (SFAS) based on International Accounting Standards (IAS) and International
Financial Reporting Standard (IFRS).
On July 9, 2012, Bapepam-LK amended two regulations, namely Rule Number IV.C.2 concerning the
Fair Market Value of Securities in the Portfolio Fund, and Rule Number VIII.C.1 concerning
Registration of Appraisers Engaging in Capital Market Activities. The amendment of Rule Number
IV.C. 2 aims to provide a legal basis for investment managers to use the fair market price (which is set
by the Indonesian Bond Pricing Agency) as a reference for calculating fair market value of the
securities. The Amendment of Rule Number VIII.C.1 aims to improve the quality and professionalism
of appraisers registered with Bapepam-LK in order to increase positive contributions to the Indonesian
Capital Market.
On August 1, 2012, Bapepam-LK amended the regulation which requires issuers and public companies
to submit an annual report. This regulation is intended to enhance the quality of disclosure in annual
reports. The regulation also requires issuers and public companies to publish their annual report on
their websites.
In order to support the needs of the Islamic Capital Market, which has more diverse contract variations
that can be used in the issuance of securities, on August 1, 2012 Bapepam-LK revised Rule Number
IX.A.14 concerning Contracts which are Used in the Issuance of Islamic Securities in the Capital
Markets.
On September 21, 2012, Bapepam-LK amended Rule Number IV.C.3 concerning Guidelines of a Daily
Announcement of a Net Asset Value of an Open Mutual Fund. This amendment aims to clarify the type
and composition limits of Portfolio Fund securities.
On May 24, 2012, Bapepam-LK amended Rule Number X.N.1 concerning Monthly Activity Reports
of Investment Manager. The amendment of this Rule aims to improve the effectiveness and quality of
reporting of fund managers through the use of electronic means (e-reporting) while maintaining safety
and reliability.
Furthermore, to enhance the independence and authority of the Audit Committee, on December 7,
2012, Bapepam-LK revised Rule Number IX.I.5 concerning Guidelines for the Establishment of Audit
Committee.
Bapepam-LK also revised Rule Number X.H.1 on December 13, 2012, in order to improve the quality
of disclosure and administrative governance of shares by the Securities Administration Agency and
issuers that conduct their own security administration.
On December 28, 2012, Bapepam-LK revised Rule Number IX.L.1 concerning Quasi Reorganization
as the legal basis for Issuers and Public Companies that intended to do a Quasi Reorganization.
To enhance the protection of investors whose assets are in collective custody, on December 28, 2012,
Bapepam-LK issued two new regulations: Bapepam-LK Rule Number VI.A.4 concerning Investor
Protection Funds and Bapepam-LK Rule Number VI.A.5 concerning Investor Protection Fund
Operators. Rule Number VI.A.4 stipulates the mandatory of establishment of Investor Protection Funds
while Rule Number VI.A.5 stipulates a license for and the governance of Investor Protection Fund
Operators.

36
 On March 15, 2012, the Minister of Finance issued Regulation No. 43/PMK.010/2012, as amended by
Ministry of Finance Regulation No. 220/PMK.010/2012, relating to certain down payment
requirements when the financial companies provide loans used in purchasing motor vehicles. This
regulation is intended to prohibit unfair competition on down payment requirements by: establishing
loan to value ratio requirements; promoting prudent practice in extending financing; minimizing moral
hazard and default risks; and providing a level playing field with respect to requiring down payments.
In order to improve protection for investors and increase the effectiveness of supervision of securities
transactions, on June 14, 2012, Bapepam-LK amended and issued new regulations concerning the
implementation of Single Investor Identity (SID) for all investors (a unique identifier for each investor
in order to facilitate trading identification) with scrip securities in Indonesian capital markets.
On July 26, 2013, OJK issued Regulation No. 1/POJK.07/2013 to enhance consumer protection in the
Financial Services Sector. This regulation implements Article 31 of Law No. 21 of 2011 on the
Financial Services Authority. Consumer protection extends to all consumers involved with
Entrepreneur Financial Services.
On August 23, 2013, OJK Regulation No. 2/POJK.04/2013 was issued to deal with concerns relating to
the repurchase of shares issued by issuers or public companies during times of significant fluctuation in
market conditions. This rule was implemented to assist publicly listed companies to buy back their own
shares without breaching existing legislation.
On September 12, 2013, OJK issued Regulation No. 3/POJK.05/2013 concerning the Monthly Report
of Non-Bank Financial Services Institutions. This OJK regulation is based on OJK surveillance
requirements set forth by the Institute of Non-Bank Financial Services (LJKNB). The information
provided to LJKNB on a monthly basis is analyzed and used to determine future decisions and policies.
On October 31, 2014, in relation to the implementation of Law No. 1 of 2013, OJK issued three
implementing regulations concerning microfinance institutions: (i) OJK Regulation
No.12/POJK.03/2014 on the Business License and Institution of Micro Finance Institutions; (ii) OJK
Regulation No.13/POJK.03/2014 on the Business of Micro Finance Institutions; and (iii) OJK
Regulation No.14/POJK.03/2014 on the Development and Supervision of Micro Finance Institutions.
On November 19, 2014, OJK issued 17 regulations known as the November Package, which are
aimed at the supervision of financial institutions and financial sector services, deepening the financial
market, and widening the publics access to financial services.

Various agencies have also taken action in their respective areas of responsibility. On January 7, 2009, Bank
Indonesia revised the BI Rate downward to 8.75% then to 8.25% on February 4, 2009, to 7.75% on March 4,
2009, to 7.5% on April 3, 2009, to 7.25% on May 5, 2009, to 7.0% on June 3, 2009, to 6.75% on July 3, 2009,
and to 6.5% on August 5, 2009. These decisions were made following the easing of inflationary pressures. Bank
Indonesia has also required greater disclosure in large purchases of foreign currency to reduce speculative
pressure on the Rupiah. The BI Rate was maintained at 6.5% until February 4, 2011, when Bank Indonesia
increased the BI Rate by 25 basis points to 6.75%. Subsequently, Bank Indonesia lowered the BI Rate by 25
basis points back to 6.5% on October 11, 2011 and by another 50 basis points to 6.0% on November 10, 2011.
On February 9, 2012, Bank Indonesia lowered the BI Rate by 25 basis points to 5.75%. On June 13, 2013, Bank
Indonesia increased the BI Rate by 25 basis points to 6.0% and on July 11, 2013, by 50 basis points to 6.5%.
Bank Indonesia subsequently increased the BI Rate on August 29, 2013, to 7.00%, on September 12, 2013, to
7.25% and on November 12, 2013, to 7.50%. On November 18, 2014 the BI Rate was raised 25bps to 7.75%. For
further discussion on other measures taken by Bank Indonesia, see Monetary Policy Monetary Policy.

The Republic has sought to ensure foreign exchange stability by managing state-owned-enterprises foreign
exchange transactions to reduce speculation and maintaining a sufficient level of foreign exchange reserves. In
line with these goals, Indonesia has entered into an ASEAN Swap Arrangement (ASA) with the ASEAN member
states as well as a bilateral swap agreement (BSA) with Japan. In addition to the ASA and BSA, Indonesia
entered into the Chiang Mai Initiative Multilateralization (CMIM) Agreement, which is a pooling arrangement
with ASEAN+3 member states with a current total size of U.S.$120 billion, which the parties have agreed to
double to U.S.$240 billion. Under the ASA and BSAs and CMIM Agreements, the equivalent of
U.S.$46.1 billion was available to the Republic as of November 30, 2014. See Foreign Exchange and Reserves
Regional Swap Arrangements of the Republic.

In May 2010, the ASEAN+3 endorsed the establishment of the Credit Guarantee and Investment Facility
(CGIF) as a trust fund of the Asian Development Bank (ADB) with an initial capital of U.S.$700 million. The

37
CGIF aims to develop and strengthen local currencies and regional bond markets so that investment rated
corporations may access those markets and avoid currency and maturity mismatches. See Foreign Exchange
and Reserves Regional Swap Arrangements of the Republic.

On December 31, 2014, the Indonesian Stock Exchange (IDX) composite stock price index closed at
5,226.9.

Following the steep drop in global oil prices that occurred during the second half of 2008, the Government
announced price cuts for gasoline on December 1, 2008, December 15, 2008 and January 15, 2009 and price cuts
for diesel on December 15, 2008 and January 15, 2009, resulting in the price of gasoline and diesel decreasing
approximately by 25.0% and 18.2%, respectively. No price changes for gasoline or diesel were announced in
2010, 2011 or 2012. However, in June 2013, the Government cut fuel subsidies on a per liter basis, resulting in a
44.4% increase in the price of petrol (to Rp6,500 per liter) and a 22.2% increase in the price of diesel
(to Rp5,500 per liter). The fuel hike announcement resulted in protests in major cities across Indonesia.

On February 25, 2009, the Government announced a fiscal stimulus package of approximately
Rp73.3 trillion (equivalent to 1.4% of the adjusted projected 2009 GDP), including Rp43 trillion relating to
reduced income tax rates and income tax benefits for corporates and individuals; Rp13.3 trillion in value added
tax (VAT) subsidies relating to oil and gas exploration and cooking oil, lower import duties for raw materials and
capital goods and income tax benefits for employees as well as for certain sectors; Rp12.2 trillion of financing
for infrastructure projects and other fiscal stimulus spending; Rp2.8 trillion relating to diesel subsidies;
Rp1.4 trillion relating to tariff discounts for industrially used electricity and Rp0.6 trillion relating to various
social benefit programs.

The stimulus package and related programs aimed to achieve three broad economic goals. The first goal is
to accelerate job creation and foster the growth of small-scale businesses through the expansion of a national
program for poverty alleviation, the expansion of credit programs for small businesses, the reduction of tax rates
for small businesses, the provision of employment tax subsidies and the creation of new jobs through additional
infrastructure projects. The second goal is to boost household purchasing power through subsidies on medicine
and cooking oil, direct subsidies (such as conditional and unconditional cash transfers) for low income
households, expansion of direct and indirect subsidies to the education and the health sectors and the reduction of
tax rates applicable to single income households. The third goal is to stimulate trade and promote
entrepreneurship by providing import duty facilities on selected capital goods and materials, providing trade
finance facilities, tax rate reductions on corporate income and listed companies, increasing the minimum
threshold for employee tax and discounting peak-hour tariffs on electricity for industrial use and reducing diesel
fuel prices. See Government Budget Implementation of Direct Cash Distribution Program and Increases
in Food and Educational Assistance Programs and Infrastructure Development.

To stimulate the economy, the Government has made an effort to simplify the Corporate Income Tax by
transitioning from a system of progressive tax rates to a single tax rate while reducing the rate payable. The
Government has reduced the tax burden on individuals through increasing the non-taxable income threshold for
individuals to Rp24.3 million per annum. The new threshold became effective on January 1, 2013, and aims to
increase the domestic consumption rate in reaction to the slowing of the global economy and boost domestic
economic activities.

In December 2014, OJK suspended the operations of 10 securities companies following breaches of OJK
Regulation No. V.D.5 on Supervision and Report of Adjusted Net Working Capital.

Further to the current OJK Regulation No. V.D.5 on Supervision and Report of Adjusted Net Working
Capital OJK plans to introduce new regulations in 2016. These new regulations will be aimed at regulating the
working capital requirements of securities companies listed on the Indonesian Stock Exchange and conducting
the activities of a clearing company.

It is not possible to foresee the direct or indirect consequences to the Republic of the adverse and continuing
global economic and financial conditions described above. In other countries, these consequences have included
major disruptions to the banking system (including effects on bank solvency, capital levels and funding access,
and in the most extreme cases, the bankruptcy or near bankruptcy of major banks), major disruptions of liquidity
in the financial and other sectors, currency depreciation, increased unemployment and severe fiscal strain arising
from remedial measures by governments.

38
Anti-corruption Measures
In 2012, the Anti Corruption Commission (Komisi Pemberantasan Korupsi or KPK) signed a memorandum
of understanding with the State Army, aiming at improving coordination in preventing corruption activities. The
memorandum of understanding set out a series of detailed measures, including signing a cooperation agreement
specifying a broad scope of cooperation. In particular, the State Army will provide the asset list of its members to
the KPK and the KPK will assist the State Army in monitoring and investigating corruption activities occurring
within the State Army. The KPK is also engaged with many international forums. It has been an active member
of the G20 Anti-Corruption Working Group, the Asia-Pacific Economic Cooperation Anti-Corruption Task
Force, the ADB/OECD, the South East Asia Parties Against Corruption and other multilateral forums. Some of
the other organizations with which the countrys authorities have entered into bilateral cooperation through
memoranda of understanding include the Federal Bureau of Investigation (USA), the Serious Fraud Office (UK)
and the Independent Commission Against Corruption (Hong Kong).

Meanwhile, as a member of the South East Asia Parties Against Corruption (SEA-PAC), Indonesia is very
active in cooperating with other SEA-PAC members to battle criminal matters under the Mutual Legal
Assistance (MLA) mechanism. Particularly, with the help of the local authorities in other SEA-PAC member
countries, KPK succeeded in scouting, investigating and deporting criminals in several cases.

In 2013, Indonesia hosted the meeting of the Asia Pacific Economic Cooperation (APEC). KPK acted as
chair for the Anti-Corruption and Transparency Working Group (ACTWG) of APEC. During 2013, KPK
organized two ACTWG meetings, two international workshops and established the ACT Network. These
workshops discussed two important issues: challenges and strategy to strengthen anti-corruption authorities and
preventing facilitation payments and managing gratuities. The workshops were attended by ACT member
economies, and international experts, international organizations, Indonesian government agencies, academics,
CSOs and the media were invited. KPK also hosted the SEA-PAC Secretariat meeting where eight law
enforcement agencies met to discuss strategic cooperation and networking in the region. Moreover, to strengthen
cooperation with other countries, KPK has signed five Memorandums of Understanding with the Government
Inspectorate of Vietnam, National Anti-Corruption Commission of Thailand, the Supreme Peoples Procuratorate
of the Peoples Republic of China, Central Vigilance Commission of India and Malaysian Anti-Corruption
Commission. In conjunction with other international engagements, Indonesia ratified the Agreement on the
Establishment of International Anti-Corruption Academy (IACA) as an international organization in 2013, as a
result of Presidential Regulation No. 49 Year 2013.

KPK continues to focus its corruption investigations on several areas, including natural resources, financial
safety and food safety. Several recent KPK cases have involved investigations into bribery offences by
prominent, high ranking government officials in relation to the energy and agriculture sectors. KPK has been able
to retain its 100.0% conviction rate and will continue to investigate grand corruption against parties at all levels.

As KPK continues to evolve, it faces several challenges, including the prevention of corruption within the
KPK itself, while attempting to investigate those institutions administering coal fields, the forestry sector and
charity funds.

KPK has in the past been criticized for not being able to recover assets exceeding the cost of its operations.
However, with KPK enforcement activities increasing in effectiveness, as of March 31, 2014, KPK has returned
Rp1.2 trillion of stolen state assets to the Republic since its inception. KPK was awarded the prestigious 2013
Ramon Magsaysay Award for its independent and successful campaign against corruption in Indonesia.

As of October 31, 2014, KPK had achieved a 100% conviction rate and currently has 658 cases in the
preliminary investigation phase, 439 cases being investigated (of which 37 are cases initiated in 2013 and 402 are
from 2014), and 346 cases being brought forward to prosecution (of which 32 are cases initiated in 2013 and 314
are from 2014).

Recent Elections
After a successful national legislative election on April 9, 2014, the General Election Commission (Komisi
Pemilihan Umum or KPU) by virtue of KPU Decree No. 412/kpts/KPU/2014 dated May 9, 2014 in conjunction
with KPU Decree No. 416/kpts/KPU/2014 dated May 14, 2014, confirmed the following eight (out of ten)
participating political parties qualified for parliamentary seats in the house of representatives or DPR:
(i) Indonesian Democratic Party of Struggle (Partai Demokrasi Indonesia-Perjuangan) with 19.0% of total votes

39
or 109 seats; (ii) Functional Group Party (Partai Golongan Karya) with 14.8% of total votes or 91 seats;
(iii) Great Indonesia Movement Party (Partai Gerakan Indonesia Raya) with 11.8% of total votes or 73 seats;
(iv) Democratic Party (Partai Demokrat) with 10.2% of total votes or 61 seats; (v) National Awakening Party
(Partai Kebangkitan Bangsa) with 9.0% of total votes or 47 seats; (vi) National Mandate Party (Partai Amanat
Nasional) with 7.6% of total votes or 49 seats; (vii) National Democratic Party (Partai Nasional Demokrat) with
6.7% of total votes or 35 seats; and (viii) Prosperous Justice Party (Partai Keadilan Sejahtera) with 6.8% of total
votes or 40 seats.

Under Decree Letter No. 417/kpts/KPU/2014 dated May 14, 2014, as determined by KPU, 132 new house
or regional representative members (Dewan Perwakilan Daerah or DPD) were elected during the national
legislative election.

New members of DPR and DPD were sworn in on October 1, 2014 and will serve until 2019.

Joko Widodo, governor of Jakarta and Jusuf Kalla, former Vice President of the Republic were elected
President and Vice President of the Republic respectively, with a term from 2014 until 2019 with total votes of
70,997,833 (equal to 53.15% of the total national vote).

On July 26, 2014 Prabowo Subianto and Hatta Rajasa appealed against the results of the presidential
election issued by KPU to the Constitutional Court. This appeal was declined by the Constitutional Court by
virtue of Award No.1/PHPU.PRED-XII/2014 dated August 21, 2014 resulting in the affirmation of Joko Widodo
and Jusuf Kalla as President and Vice President of the Republic.

New Government
President Widodo and Vice President Muhammad Jusuf Kalla were sworn in as President and Vice
President of the Republic on October 20, 2014. President Widodo and Vice President Jusuf Kalla replaced the
former President Susilo Bambang Yudhoyono (who served two Presidential terms) and former Vice President
Boediono, respectively.

New Cabinet (Kabinet Kerja)

On October 27, 2014 President Joko Widodo issued Presidential Decree No. 121/P of 2014 on Formation of
Ministries and Appointment of Ministers under Working Cabinet for 2014-2019. Under this decree, President
Widodo named his cabinet as Kabinet Kerja (Working Cabinet). Kabinet Kerja consists of 34 Ministries up
from (31 under former President Yudhoyono), four of which are Coordinating Ministries.

Out of nine new Ministries, eight new Ministries were formed following changes to the disciplines assigned
to ministries from the previous Indonesia Unite II Cabinet under former President Yudhoyono: (1) Coordinating
Ministry of Human Development and Culture, previously Coordinating Ministry of Public Welfare; (2) Ministry
of Public Work and Public Housing, resulting from the merger of the Ministry of Public Work and Ministry of
Public Housing; (3) Ministry of Tourism, previously Ministry of Tourism and Creative Economy; (4) Ministry of
Culture, Basic and Middle Level Education, formerly the Ministry of Education and Culture; (5) Ministry of
High Education, Research and Technology, also previously known as Ministry of Education and Culture;
(6) Ministry of Environment and Forestry, resulting from the merger of Ministry of Environment and Ministry of
Forestry; (7) Ministry of Manpower, previously the Ministry of Manpower and Transmigration; and (8) Ministry
of Village, Development Disadvantaged Regions and Transmigration, previously Ministry of Development of
Disadvantage Regions. The Coordinating Ministry on Maritime is a newly established ninth line ministry.

Four Coordinating Ministries were also established:

(i) Coordinating Ministry of Politics, Law, and Security, which will coordinate the Ministry of Home
Affairs, Ministry of Foreign Affairs, Ministry of Defense, Ministry of Law and Human Rights,
Ministry of Communication and Information, and Ministry of Empowerment of State Aparatus and
Bureaucratic Reform;
(ii) Coordinating Ministry of Maritime, which will coordinate the Ministry of Transportation, Ministry of
Maritime and Fisheries, Ministry of Tourism, and Ministry of Energy and Mineral Resources;
(iii) Coordinating Ministry of Economy, which will coordinate the Ministry of Finance, Ministry of State-
Owned-Enterprises, Ministry of Cooperative and Micro, Small and Medium Enterprise, Ministry of
Industry, Ministry of Trade, Ministry of Agriculture, Ministry of Manpower, Ministry of Public Works
and Public Housing, Ministry of Environment and Forestry, and Ministry of Land and Land
Administration; and

40
 (iv) Coordinating Ministry of Human Development and Culture, which will coordinate the Ministry of
Religious Affairs, Ministry of Health, Ministry of Social, Ministry of Women Empowerment, Ministry
of Culture and Basic and Middle Education, Ministry of High Education, Research and Technology,
Minister of Youth and Sports, and Ministry of Village, Development Disadvantage Regions and
Transmigration.

President Widodo also appointed a new Attorney General on November 20, 2014 to replace the previous
Attorney General who had reached the age of retirement. A new Vice Minister of Foreign Affairs and a Vice
Minister of Finance were also appointed on October 27, 2014.

President Widodo also implemented an enhanced selection method for selecting candidates for ministerial
positions by involving KPK to participate in the assessment process of the candidates.

House of Representatives
On August 5, 2014, the Government issued Law No. 17 of 2014 on Peoples Consultative Assembly, House
of Representatives and Regional Representatives Council. Article 427 of Law No.17 of 2014 revokes Law No.29
of 2007. Article 81 of Law No. 17 of 2014 provides that the chairman of the DPR is elected from a selection of
chairman candidates by a member of the DPR. Previously, under Law No.27 of 2009, the chairman of the DPR
was determined by DPR members from the winning party of the general election. The new law has caused
controversy with regard to whether DPR has the authority to use its rights of interpellation in cases where
government officials have violated recommendations from the House of Representatives. As of December 2014,
several articles of Law No.17 of 2014 are under judicial review and the effectiveness of this law remains
pending.

Election of Governor
On October 2, 2014 former President Yudhoyono issued Government Regulation in lieu of Law No.1 of
2014 on Election of Governor, Regent and Mayor (Regulation No.1/2014) that revoked Law No.22 of 2014 on
Election of Governor, Regent and Mayor. Under Regulation No.1/2014 the election of Governor, Regent and
Mayor must be carried out simultaneously every five years through general election by the people administered
by the General Election Commission (Komisi Pemilihan Umum or KPU) at the relevant regional level. One
change under this Regulation No.1/2014 is the introduction of a public test on the candidates competency and
integrity that will be carried out by a committee formed by regional KPU.

To anticipate the transition under the five-year simultaneous general election of the head of regional
governments, the first simultaneous general election is scheduled for 2015. Another simultaneous general
election will be held in 2018 for heads of regional governments with office terms that end in the year of 2016,
2017 and 2018. The office term for the 2018 elected heads of regional government will only be until 2020. To
anticipate any vacancy of head of regional government office prior to the 2018 general election, temporary heads
of regional governments will be appointed until permanent representatives are appointed for the relevant offices
as a result of the 2018 general election. It is expected that by 2020, all general elections of head of regional
government can be performed simultaneously throughout Indonesia.

In relation to the issuance of Law No.22 of 2014, a new Law No.23 of 2014 on Regional Government was
also passed. However, considering the escalation of public disapproval on non-direct election on heads of
regional government, former President Yudhoyono on October 2, 2014 issued Government Regulation in lieu of
Law No.2 of 2014 on Regional Government (Perpu No.2/2014) to rescind the provisions of Law No.23 of 2014
on the DPRD Provinsi and DPRD Kabupaten/Kota authority to elect Governor, Regent and Mayor.

Special Task Force for Upstream Oil and Gas Business Activities
BP MIGAS was dissolved on November 13, 2012 by Constitutional Court Decision No. 36/PUU-X/2012.
The Special Task Force Upstream Oil and Gas Business Activities (SKK MIGAS) under the Ministry of Energy
and Mineral Resources was established as a temporary replacement regulator. On January 14, 2013, the
Presidential Regulation No. 9 of 2013 concerning the Implementation of Management of Upstream Oil and Gas
Activities (PR 9/2013) was promulgated. Such Regulation made SKK MIGAS appointment permanent.

Under PR 9/2013, implementation of upstream oil and gas business activities will be performed by SKK
MIGAS under the coordination and monitoring of the Minister of Energy and Mineral Resources until a new oil
and gas law is in force. PR 9/2013 introduces a Supervising Committee that will control, supervise and evaluate
the oil and gas business activities managed by SKK MIGAS. This Supervising Committee did not exist during

41
the BP MIGAS regime. The Supervising Committee consists of the Minister of Energy and Mineral Resources as
chairman, the Vice Minister of Finance with state budget authority as vice chairman and the Head of Investment
Capital Coordinating Board and the Vice Minister of Energy and Mineral Resources as members.

The Supervising Committee is required to report to the President at least once every six months. The
chairman of SKK MIGAS is appointed by and will have direct responsibility to the President. SKK MIGAS staff
may come from civil or non-civil service, but initially SKK MIGAS will be staffed by ex-BP MIGAS employees.
The operational costs of SKK MIGAS in running the management of upstream oil and gas business activities will
be funded from the Governments portion of each oil and gas upstream activity. The Minister of Energy and
Mineral Resources will propose the operational cost figures for the Minister of Finance to approve. In respect
thereof, PR 9/2013 had a retrospective effect as of November 13, 2012 to the extent relating to the operational
costs of SKK MIGAS in managing upstream oil and gas business activities.

A new Head of SKK MIGAS has been appointed by the President by virtue of Presidential Decree
No.189/M/2014 on Termination and Appointment of Head of SKK MIGAS dated November 18, 2014.

Regional Autonomy in Mining Sector

On November 22, 2012 the Constitutional Court issued a Constitutional Court Decision No. 10/PUU-X2012
which amended certain provisions of Law No. 4 of 2009 on Minerals and Coal Mining (Mining Law) relating to
the determination of which geographical areas are open for mining activities in Indonesia. The Mining Law
called for the central Government to determine Indonesias Mining Area (WP), being the geographic areas in
which mining activities could be carried out. As a sub-set of the WP, the central Government was also required to
determine (after being coordinated with regional governments and notified to the House of Representatives)
which parts of the WP would constitute Mining Business Area (or WUP), being areas which can be auctioned
off and over which mining business licenses could be granted to mining companies. Having determined the
WUP, the central Government was then tasked to divide the WUP up into actual concession blocks known as
Mining Business License Area (or WIUP). Having made those determinations, the regional governments were
then left to run the auction processes for the WIUP for the stated mineral type. The Constitutional Court decision
in essence takes this right of determination out of the hands of the central Government and puts its squarely in the
hands of the regional governments.

The Constitutional Court decision will not affect mining companies with existing Contracts of Work or
legitimate mining business licenses. Its impact relates solely to the granting of new concessions. The
Constitutional Court case merely changes the process by which the WP and WIUP maps are determined, and
how WIUP blocks are designed.

Prohibition on the Export of Unprocessed Minerals

The implementation of new regulations first set out in the Mining Law which prohibits the export of
unprocessed minerals from Indonesia after January 12, 2014 have been introduced. These regulations are
intended to increase the value of commodity exports and encourage mining companies to invest in the domestic
processing industry with the construction of new smelters to refine the raw minerals. For additional information
on the new regulations, please see Key Regulatory Updates Mining Regulations above.

Subsidized Fuel Price Adjustments, Budgetary & Smart Cards

On November 18, 2014, the Government increased the price of gasoline (Type RON-88) by 31%, from
Rp6,500/liter to Rp8,500/liter, while the price of diesel fuel was increased by 36%, from Rp5,500/liter to
Rp7,500/liter. The adjustment was based on budgetary considerations, global oil price movements,
macroeconomic outlook, and the need for sufficient funds for welfare assistance. The impact of the increases is
expected to be largely realized in 2015.

Nevertheless, due to the continuing decline of global oil price in December, the Government decided to re-
adjust the subsidized fuel price. On December 31, 2014, the Government re-adjusted the subsidized fuel price
and introduced a new mechanism effective January 1, 2015. Under the new mechanism, there are three types of
fuel: Specific Fuel, Specifically Assigned Fuel and Generic Fuel. Specific Fuel is subsidized and consists of
diesel fuel and kerosene. Specifically Assigned Fuel is not subsidized and consists of fuels other than diesel fuel
and kerosene which is distributed in assigned areas. Generic Fuel is not subsidized, consists of fuels other than
diesel fuel and kerosene which is distributed outside assigned areas.

42
 The basic price and retail price of fuel is set by the Government through the Minister of Energy and Mineral
Resources with consideration of purchasing cost, distribution cost, storage cost, and margin. Under the new
mechanism, the retail price of Specific Fuel is as follows: (i) kerosene of Rp2,500/liter (inclusive of VAT), and
(ii) diesel fuel is set by taking the aggregate of basic price, VAT, and motor fuel tax, deducted by subsidy as high
as Rp1,000/liter. As of January 1, 2015, the retail price for kerosene and diesel fuel was Rp2,500/liter and
Rp7,250/liter, respectively. The retail price of the Specifically Assigned Fuel is set by taking the aggregate of
basic price, VAT, motor fuel tax, and distribution cost of 2% of basic price. As of January 1, 2015, the retail
price for the Specifically Assigned Fuel was Rp7,600/liter. The retail price of Generic Fuel, which is also not
subsidized, is set by taking the aggregate of basic price, VAT, motor fuel tax, and margin. For Generic Fuel, the
margin is set between 5% and 10% by petrol station owner, with the motor fuel tax is set by the local
government. As of January 1, 2015, the retail price for the Generic Fuel was Rp7,600/liter.

Historically, spending on subsidies has consumed a large portion of the Indonesian state budget. In the 2013
Budget and Revised 2014 Budget, the total energy subsidy accounted for approximately 19% of total government
expenditure as opposed to a relatively limited historical budget allocation for productive spending. Capital
expenditure accounted for 11% of total central government expenditure in 2013, while in the Revised 2014
Budget, capital expenditure accounted for 9% of total central government expenditure.

With recent global and domestic economic challenges, greater emphasis has been placed on improving
national competitiveness. The Government is pursuing a more focused subsidy regime to provide direct subsidies
to low income households and to create a larger fiscal space for infrastructure development. Following the
adjustment of fuel subsidies, the Government has implemented a conditional cash transfer program for low
income households. Smart cards have been introduced to provide improved health care services, better
facilities, education assistance and other kinds of social assistance.

On November 3, 2014 President Joko Widodo issued Presidential Decree No. 166 of 2014 on the
Acceleration Program to Overcome Poverty, which became effective on November 10, 2014. Under this
regulation, the Republic set up social protection programs to accelerate the eradication of poverty,
including: (i) Prosperous Family Savings Program (Program Simpanan Keluarga Sejahtera), an aid program
providing a form of savings to 15.5 million poor households throughout Indonesia (recipients will receive the
Prosperous Family Cards (Kartu Keluarga Sejahtera), which is aimed at improving the distribution of social
protection); (ii) Smart Indonesia Program (Program Indonesia Pintar), targeted for distribution to school-aged
children from poor households to ensure the continuation of their education up to high school level (recipients of
this program will receive Smart Indonesia Cards (Kartu Indonesia Pintar, or KIP) for identification purposes);
and (iii) Healthy Indonesia Program (Program Indonesia Sehat), to be distributed to poor households in
conjunction with the BPJS Kesehatan program (BPJS Kesehatan card for poor households will be replaced by
Healthy Indonesia Cards (Kartu Indonesia Sehat, or KIS)). KIS will be provided to approximately 88.1 million
people and KIP will be provided to approximately 24 million underprivileged children. Funding for the
implementation of the Acceleration Program to Overcome Poverty will be derived from the state budget and
other lawful sources of funding.

Land and People

Area
Situated between Malaysia, Singapore and the Philippines to the north and Australia to the south, the
Republic of Indonesia covers a total land area of approximately 1,910,931 square kilometers, comprising
approximately 17,504 islands (of which an estimated 957 are inhabited) and forming part of the worlds largest
archipelago. The main islands of Indonesia are Sumatera, Java, Bali, Kalimantan (also known as Borneo, the
northern part of which belongs to Malaysia and Brunei), Sulawesi and Papua (the eastern part of which belongs
to Papua New Guinea). Indonesia extends 5,120 kilometers across the equator from Nangroe Aceh Darussalam
(Aceh) in the west to Papua in the east. Jakarta, Indonesias capital and largest city, is located on the northern
coast of the western part of Java.

Population
Indonesia had a population of approximately 244.8 million as of June 2014 and is the fourth most populous
country in the world, after China, India and the United States. The population is primarily concentrated in Java
(estimated at approximately 137 million in 2010), and Jakarta, the capital, was estimated to have a population of
approximately ten million in 2010.

43
 Indonesias population grew at a rate of 2.0% per annum during the 1980s and 1.4% during the 1990s. The
growth rate increased to 1.5% per annum during the period from 2000 to 2010. The rate of growth of Indonesias
population was reduced by the successful implementation of the Governments family planning program which
started in 1970. Concurrent achievements in health care lowered the infant mortality rate and extended average
life expectancy. The Government estimates that, in 2010, approximately 28.9% of the population was under
15 years of age and approximately 46.0% was under 25 years of age.

According to the 2010 census, approximately 87.0% of the Indonesian population is Muslim and 10.0% is
Christian, with the remaining population consisting of Hindus, Buddhists and followers of other religions.
Indonesias population is primarily of Malay descent, but consists of more than 300 ethnic groups, including the
Acehnese, Batak and Minangkabau in Sumatera; the Javanese and Sundanese in Java; the Madurese in Madura;
the Balinese in Bali; the Sasak in Lombok; the Minahasan, Makassarese, Toraja and Bugis in Sulawesi; the
Dayak in Kalimantan; and the Dani and Asmat in Papua. The countrys population also includes people of
Chinese, Arab, Eurasian, Indian and Pakistani backgrounds.

The national language of Indonesia is Bahasa Indonesia, which is based on the Malay language. English is
widely used and taught in most secondary schools. In total, approximately 500 languages and dialects are spoken
throughout Indonesia.

Government and Political Developments

Political History and Development of Political Parties
Indonesia proclaimed its independence on August 17, 1945 and adopted its first constitution (the 1945
Constitution). From 1605 until its independence, Indonesia was under almost continuous Dutch colonial rule
and was known as the Netherlands East Indies. The period of Dutch administration was interrupted by a short
period of British colonial rule in the 19th century and Japanese occupation from 1942 to 1945.

The Republics independence was proclaimed by Soekarno and Mohammad Hatta, who then served as the
Republics first President and Vice President, respectively. In 1965, the Indonesian Communist Party
unsuccessfully attempted to seize political power and, following this failed attempt, executive power was
transferred from President Soekarno to General Soeharto in 1966. In 1967, General Soeharto was declared acting
President by the Transitional Assembly (Majelis Permusyawaratan Rakyat Sementara), and in 1968, Soeharto
was formally elected for the first of six full five-year terms as President. Soeharto served as Indonesias President
until 1998.

Mid-1997, Indonesia, along with many other countries in the region, was affected by the Asian financial
crisis which coincided with the countrys worst drought in 50 years, falling prices for export commodities, severe
depreciation in the value of the Rupiah and rapid inflation. In 1998, amid riots calling for his resignation and
widespread civil unrest, President Soeharto resigned, and the then-Vice President Baharuddin Jusuf Habibie
succeeded him as Indonesias third President. In 1999, nationwide elections were held and Abdurrahman Wahid
was elected President by the Peoples Consultative Assembly (Majelis Permusyawaratan Rakyat or MPR).
Following President Wahids impeachment in 2001, the then Vice President Megawati Soekarnoputri, daughter
of Indonesias first President, Soekarno, succeeded him as President and Hamzah Haz became Vice President. In
July 2004 (and a September 2004 run-off election), Indonesians voted in the countrys first direct presidential
election, electing Susilo Bambang Yudhoyono as President of the Republic and Muhammad Jusuf Kalla as Vice
President. President Yudhoyono successfully ran for re-election in July 2009, and along with Vice President
Boediono, was inaugurated on October 20, 2009.

During the Soeharto administration, the previously existing political parties consolidated into three parties:
Golkar, the Indonesian Democratic Party (Partai Demokrasi Indonesia) and the United Development Party
(Partai Persatuan Pembangunan or P3). Subsequently, the formation of other political parties was permitted, and
48 political parties took part in the 1999 elections and 24 political parties in the 2004 elections. In the 2009
elections, 44 political parties fielded candidates, resulting in nine political parties holding 560 seats in the DPR:
the Democratic Party (Partai Demokrat) with 148 seats (26.4%); Golkar with 106 seats (18.9%); the Indonesian
Democratic Party of Struggle (Partai Demokrasi Indonesia-Perjuangan or PDI-P) with 94 seats (16.8%); the
Prosperous Justice Party (Partai Keadilan Sejahtera) with 57 seats (10.2%); the National Mandate Party (Partai
Amanat Nasional) with 46 seats (8.2%); the P3 with 38 seats (6.8%); the National Awakening Party (Partai
Kebangkitan Bangsa) with 28 seats (5.0%); the Great Indonesia Movement Party (Partai Gerakan Indonesia
Raya) with 26 seats (4.6%) and the Peoples Conscience Party (Partai Hati Nurani Rakyat) with 17 seats (3.0%).
President Yudhoyono is a member of the Democratic Party and Vice-President Boediono is unaffiliated with any
political party.

44
 A total of 44 political parties, including six regional parties in Aceh, participated in the last election for
members of the MPR on April 9, 2009. The Democratic Party won 150 of the seats (26.8% of the total), followed
by the Golkar Party with 107 seats (19.1%), the PDI-P with 95 seats (17.0%), the Prosperous Justice Party with
57 seats (10.2%), the National Mandate Party with 43 seats (7.7%), the United Development Party with 37 seats
(6.6%) and three other parties. The April 2009 legislative elections marked the first time in the Republics history
that voters cast ballots for individual candidates instead of parties. President Yudhoyonos Democratic Party,
having secured at least 20.0% of the seats, was able to nominate a presidential candidate on its own without
entering into a coalition with another party.

Indonesias third direct presidential election was held in July 2014, a few months after the legislative
elections held in April 2014. Former President Yudhoyono was constitutionally barred from serving a third term.
See Overview Recent Elections. Although presidential candidates are nominated individually (along with
their respective vice-presidential candidates), relationships with and support from political parties have a
considerable effect on the result. Therefore, the legislative election results are an important indicator of the
outcome of the presidential elections.

A total of 10 parties took part in the 2014 legislative election. See Overview Recent Election. In
addition to presidential and legislative elections, each of Indonesias 34 provinces conducts their own
gubernatorial elections, with governors serving five-year terms. Recent elections have resulted in the
appointments of Irwan Prayitno in 2010 for the West Sumatera province, Zaini Abdullah for the Aceh province
and Joko Widodo for the Jakarta province in 2012, Ahmad Heryawan for the West Java Province, Ganjar
Pranowo for the Central Java province, I Made Mangku Pastika for the Bali province, Alex Noerdin for the South
Sumatera province and Annas Maamun for the Riau province in 2013, and Muhammad Ridho Ficardo in 2014
for the Lampung province. With the election of Joko Widodo as the new President, Basuki Tjahaja Purnama was
sworn in as the governor for the Jakarta province on November 13, 2014 and will remain in office until 2017.

The basic philosophy of the Indonesian state is embodied in a set of fundamental principles known as
Pancasila (the five principles), encompassing belief in one supreme God, humanity, the unity of Indonesia,
democracy led by the wisdom of deliberations among representatives and social justice for all.

Central Government
Indonesias government is based on the 1945 Constitution, as amended (the Constitution), under which the
Republic is structured as a unitary republic. Between 1999 and 2002, the Constitution was amended four times,
creating constitutional checks and balances, a separation of powers and a more direct democracy. Prior to the
amendments, and throughout the period of President Soehartos administration, Indonesias government had been
highly centralized. Power during the Soeharto period was concentrated in the Presidency and the military exerted
significant influence over the Government including by holding a specified number of allocated seats in the
legislature. The major goals of the amendments and other political reforms since the end of the Soeharto regime
have been to (i) increase the level of direct democracy; (ii) reduce the influence of the military in the
Government; (iii) disperse power to regional and local government authorities; and (iv) improve the transparency
and integrity of the judicial system.

The Constitution vests the sovereignty in the countrys people and establishes the office of the President, the
MPR which consists of the DPR and the Regional Representatives Council (Dewan Perwakilan Daerah), the
Supreme Audit Agency (Badan Pemeriksa Keuangan or BPK), the Supreme Court (Mahkamah Agung), the
Constitutional Court (Mahkamah Konstitusi) and the Judicial Commission (Komisi Yudisial).

The MPR has the authority to amend the Constitution, dismiss the President or Vice President and appoint a
Vice President (or a President and Vice President) in the event of a vacancy. The MPR has a bicameral structure,
consisting of the DPR, which is the principal legislative body, and the Regional Representatives Council. The
DPR has 560 members. The Regional Representatives Council has four members from each province, which
currently amounts to 132 members. The MPR is constitutionally required to sit at least once every five years. The
MPRs decisions are taken by majority vote except for any constitutional amendment, which requires a quorum
of at least two-thirds and approval by at least 50.0% plus one member of the MPR.

Members of the DPR are elected by a proportional representation system. The Regional Representatives
Council members are elected in non-partisan elections based on a plurality of votes within the relevant electorate.
In the most recent legislative elections held in April 2009, Indonesias voters elected members of the DPR and
the Regional Representatives Council.

45
 Each of the DPR and the President has the power to initiate legislation. All legislation, including the
Republics budget, must be approved by both the DPR and the President. While the Regional Representatives
Council is able to initiate legislation regarding regional matters, this is subject to approval from both the DPR
and the President.

The President has the authority and responsibility for the conduct of the administration of the Republic,
including the appointment of the cabinet, and is the supreme commander of the Indonesian armed forces. The
President has the authority to declare war, make peace, conclude treaties with other states and propose statutes;
these presidential actions must, however, be approved by the DPR before taking effect. Constitutional
amendments in 1999 restrict the President and Vice President to a maximum of two five-year terms.

The President is assisted in the administration of his responsibilities by ministers who are appointed and
dismissed by the President and who are responsible only to the President. The Presidents cabinet currently
consists of four coordinating ministers and 34 ministers. The cabinet is aided by three non-ministerial officials
and a secretary to the cabinet. See Overview Recent Election.

Judicial System
The Constitution states that the Indonesian judicial system must be independent and that judicial authority is
to be exercised by the courts free from the influence of non-judicial power. This judicial independence was re-
affirmed under a judicial authority and powers law adopted in January 2004 and a subsequent law in October
2009. The Constitution and the new judicial authority law stipulate that the Republics judicial power is
exercised by the Supreme Court, various lower courts and the Constitutional Court. The courts below the
Supreme Court are organized by subject matter jurisdiction. These courts include the general, religious, military
and administrative courts. The general district courts have jurisdiction over all criminal and civil cases not within
the limited jurisdiction of any of the special courts. The religious courts have jurisdiction over cases such as
family law among Muslims. The military courts have jurisdiction over cases involving military personnel. The
administrative courts have jurisdiction over actions involving certain government decisions. Furthermore, there
are several special courts under the general courts and the administrative courts such as (i) commercial courts
which have jurisdiction over bankruptcy cases and intellectual property rights cases (except trade secrets);
(ii) juvenile courts which have jurisdiction over child cases; (iii) human rights courts which have jurisdiction
over gross violations of human rights cases; (iv) corruption courts which have jurisdiction over corruption cases;
(v) labor courts which have jurisdiction over industrial relations cases; (vi) fishery courts which have jurisdiction
over criminal fishery cases; and (vii) tax courts which have jurisdiction over tax disputes. The Supreme Court
also has the authority to issue opinions on legal matters to various government authorities and officials, to order a
court to adjudicate a particular matter or to set aside an unlawful decision. The Constitutional Court has exclusive
jurisdiction with respect to questions of constitutional law.

In 2004, a law was adopted to establish a Judicial Commission (the Judicial Commission Law) with the
authority to nominate judges of the Supreme Court and the responsibility to maintain judicial integrity. Under the
Judicial Commission Law, judicial candidates for Supreme Court judgeships are proposed by the Judicial
Commission to the DPR, nominated by the DPR and appointed by the President, and other judges are appointed
by the President, acting on proposals by the Chairman of the Supreme Court. In addition to setting forth the
rights of the Judicial Commission to propose Supreme Court justices, the 2004 Judicial Commission Law gave
the Judicial Commission the responsibility to supervise the activities of judges and bring enforcement actions
against judges accused of breaches of judicial codes of ethics. In 2006, 31 Supreme Court justices instituted an
action before the Constitutional Court, seeking a declaration that the provisions of the Judicial Commission Law
which granted the Judicial Commission the right to oversee the activities of Supreme Court justices were unclear
and conflicted with the Constitution. After a judicial review of both laws, in August 2006 the Constitutional
Court ruled that a number of the provisions of the Judicial Commission Law were unconstitutional, and resulted
in legal uncertainty in the application of the Judicial Commission Law to the supervisory role and responsibilities
of the Judicial Commission. This ruling has been addressed through Law No. 48 of 2009 on Judicial Powers,
which governs the structure of the Supreme Court, the general courts, the religious courts and the administrative
courts and Law No. 18 of 2011 on amendment to the Judicial Commission Law which, inter alia, further
elaborates upon the Judicial Commissions supervisory role and its relationship with the constitutional court.

In 1999, pursuant to Law No. 5 of 1999 on Prohibition on Monopolistic Practices and Unfair Business
Competition (the Anti-Monopoly Law), the Indonesian Business Competition Supervisory Commission (the
KPPU) was established as a supervisory body to promote fairness in business competition. The KPPU is
authorized to initiate administrative proceedings to combat unfair competition practices. Decisions from KPPU
proceedings are appealable to the Supreme Court to promote objective rulings.

46
Regional Governments and Regional Autonomy
Indonesia has 34 provinces, including the special region of the capital of Jakarta. Each province is headed
by a governor and consists of several subdivisions. There are two types of subdivisions, namely kabupaten, or
regencies, and kota, or municipalities. Political and governmental arrangements in regencies and municipalities
are generally similar, but municipalities tend to be more urban. Regencies and municipalities are divided into
kecamatan, or districts, which in turn are further divided into villages. Since 2000, the number of provinces has
increased from 27 to 34. Between 2001 and 2011, each of the number of regencies, municipalities, districts and
villages also increased. As of December 18, 2014, there were 416 regencies, 98 municipalities, 6,994 districts,
8,309 sub-districts and 72,944 villages in Indonesia.

Members of the provincial legislatures and the regency and municipal councils are elected by a proportional
representation system. In the most recent legislative elections held in April 2009, Indonesias voters elected
members of the provincial legislatures and the regency and municipal councils.

In 1999, two laws were enacted to provide greater autonomy to provincial, municipal and district
governments and allow for revenue sharing between the central Government and the regional governments.
These laws revised the hierarchical relationship between the central Government and the provincial, municipal
and district governments. Prior to the enactment of these laws, Indonesia followed a unitary state system of
government, with almost all authority resting with the national government. The two laws passed in 1999
transferred governmental authority to regional governments except authority over foreign affairs, defense, the
judicial system, monetary and fiscal policy, religion and other matters of national concern. Under the laws,
regional leaders at the provincial, municipal and district level were elected by and were accountable to regional
legislatures, rather than to the national and regional governments. These laws also allocated a specified portion of
national government revenues, including revenues from taxes and from the sale of natural resources, to the
provinces, districts and municipalities. Before the implementation of these laws, the national government decided
the amount of revenue allocated to each region in the annual budget. Under these laws, the regional governments
were permitted to undertake onshore and offshore borrowings. Onshore borrowings were subject to the approval
of the regional legislature, and offshore borrowings were subject to the approval of both the regional legislature
and the central Government.

In 2004, the central Government replaced the 1999 regional autonomy law with a new regional autonomy
law, Law No. 32 of 2004 which was further amended by Law No. 8 of 2005 and Law No. 12 of 2008 (the
Autonomy Law). Under the Autonomy Law, the central Government assumed the authority to implement
general policies in all sectors of the economy and to recruit and promote civil servants and officials at the local
level. The Autonomy Law also stipulates a government hierarchy under which mayors and regents are
accountable to the Minister of Home Affairs, through the governor of the province in which their municipality or
regency is located, as well as to their municipal or regency legislature. The provincial governors are also
accountable to the President, through the Ministry of Home Affairs, and to their provincial legislatures.
Furthermore, regional leaders at the provincial, municipal and district level are elected directly by the people of
that political unit. The Autonomy Law outlined the division of the local governments and the central
Governments roles in policymaking and human resource capacity building.

In 2004, the Government also replaced the 1999 revenue sharing law between the central Government and
the regional governments. Under this new revenue sharing law, the regional governments may only borrow
onshore funds that originate from the central Government, other regional governments, banks, non-bank financial
institutions and the public. Onshore borrowings from the public must be in the form of domestic bonds, which a
regional government may issue upon obtaining the approval of its regional legislature and the central
Government. The regional governments may also undertake certain offshore borrowings, called two-step loans
(which are made through the Ministry of Finance) after obtaining approval from the Ministry of Home Affairs.
Under the 2004 law, the central Government is also allowed to fulfill its revenue sharing obligations to the
regional governments by giving grants in the form of cash, goods or services. In 2007, the Government also
established a legal framework for the issuance of municipal bonds. See Financial System Capital Markets
and Capital Markets Regulation.

The provinces of Aceh and Papua enjoy special autonomy, including through special regional assemblies
and courts, and receive special autonomy funds from the central Government. See Peace Agreement, Special
Autonomy and Integration Projects in Aceh, Special Autonomy and Activities in Papua and Government
Budget Fiscal Policy.

47
Independent Anti-corruption Commission
In December 2002, a new law established the KPK. The primary responsibilities of the KPK are
investigating and prosecuting serious cases of corruption that involve losses to the Government in excess of
Rp1 billion due to the conduct of government officials, especially judicial and law enforcement officers. The
KPK is vested with powers to accomplish these objectives. The KPK also coordinates and supervises the anti-
corruption efforts of local police and prosecutors, monitors the progress of administrative agencies in
implementing policies, works to educate the public on anti-corruption issues and consults with the Government
on structural changes to curb official corruption based on wealth declaration forms and bribery reports by
government officers, as well as research by the KPK. The KPK operates independently of the executive and
legislative branches of the Government, although its funding is provided through the normal budget process. The
KPKs professional staff comprises police, auditors, prosecutors and non-civil servant professionals.

From the commencement of operations in 2004 until November 30, 2014, the KPK conducted preliminary
investigations into 658 cases resulting in 439 cases of investigations, leading to prosecution in 346 cases. As of
November 30, 2014 the KPK had achieved a conviction rate of 100.0% of the prosecutions it had brought and
had convicted 277 government officials. The KPK believes it has prevented over Rp212.8 trillion in potential
losses to the Government by protecting state-owned assets and funds from misuse or improper transfer and by
preventing potential losses of oil and gas business activities. In furthering the Governments anti-corruption
commitment, the KPK has been effective in combating corruption at high levels. KPK has obtained among
others, convictions of Ministers/Heads of Ministerial Level, Province Governors, Governors and Deputy
Governors of the Central Bank, Mayors and Heads of Regions/Districts, judges, prosecutors and police officers.
The Government aims to improve the investment climate within Indonesia by reducing corruption. The KPK is
one of the Governments primary means of addressing corruption within Indonesia.

Separately, in September 2009, following a KPK investigation of a police detective in connection with a
bribery investigation of a radio communication system in the Department of Forestry, which involved the board
of directors of PT Masaro Radiokom, the police arrested and detained two deputy chairmen of the KPK on
charges of abuse of power and extortion in connection with a graft investigation. During an ensuing investigation
by a special team appointed by the President, both men were suspended from their positions. The special team
found no evidence of their wrongdoing and recommended their reinstatement. Subsequently, on January 24,
2011, the charges were dropped by the Attorney Generals office and both men were reinstated by the President.
In January 2011, KPK detained 24 then current and former Members of DPR over alleged bribery related to the
appointment of a central banker. The suspects were later convicted of having received various payments to elect
a senior deputy governor of Bank Indonesia in 2004.

On January 11, 2012, Presidential Regulation No. 6 of 2012 on National Coordinating Committee on
Prevention and Eradication of Money Laundering was issued. This regulation mandates the formation of a
coordinating committee whose sole task is to coordinate the handling of the prevention and eradication of money
laundering. This committee will be chaired by the Coordinating Minister for Political, Law and Security and
must hold meetings at least once a year. A task force led by the Head of Center for Report and Analysis of
Financial Transaction (Pusat Pelaporan dan Analisis Transaksi Keuangan) will be formed to support the
coordination committee. This task force must hold coordination meetings at least once every six months.

In addition, in 2012 the KPK arrested a member of the House of Representatives for allegations of
corruption and charged three judges for receiving gifts in relation to criminal proceedings. In 2013, the KPK
brought several charges against a former Justice of the Constitutional Court of the Republic in relation to
incidents involving the acceptance of bribes to fix the courts ruling and his involvement in money laundering
activities. In June 2014, the corruption court sentenced the former Justice to a life sentence. This decision is now
pending the result of an appeal.

In 2013, the KPK also commenced a corruption case against a former Youth and Sports Minister for his
alleged involvement in corruption in connection with the construction, procurement and improvement of the
Hambalang National Training, Development and Sporting School Center during 2010 to 2012. In July 2014, he
was sentenced to four years in jail.

In April 2014 the KPK began investigating a former Head of BPK on corruption in relation to a tax appeal
during his 2002-2004 office as Directorate General of Tax, and in May 2014 the KPK began investigating a
former Minister of Religion in relation to a 2012-2013 hajj administration corruption case.

48
 Each year, the KPK determines which areas to focus its attention and investigations on, including natural
resources, financial and food security. Recent KPK investigations capturing high ranking government officials
and prominent figures have focused on bribery offences committed by public officials in the energy and
agriculture sectors.

Terrorism
Numerous terrorism-linked bombing incidents have taken place in Indonesia since 2002, including at
nightclubs in Bali in October 2002 and October 2005, the JW Marriott Hotel in Jakarta in August 2003, the
Australian Embassy in Jakarta in September 2004 and the JW Marriott and Ritz-Carlton hotels in Jakarta in
July 2009, resulting in numerous deaths and property damage. The threat of further acts of terrorism has
adversely affected transportation, tourism, employment and investment in the Indonesian economy. See
Principal Sectors of the Economy Trade, Hotel and Restaurant Services and Gross Savings and
Investment. In response, security forces and the judiciary took action to bring the perpetrators to justice and
have attacked terrorist networks. For example, two self-proclaimed leaders of Jemaah Islamiah, a Southeast
Asian terrorist network, were sentenced to imprisonment in April 2008 and three perpetrators linked to both the
Bali bombings were executed in November 2008. In September 2009, Noordin Mohammad Top, one of
Indonesias and Asias most-wanted terrorists, was killed by Indonesian security forces. Top was linked to a
series of attacks across Indonesia, including the 2002 and 2005 Bali bombings, the 2003 attack on the Marriott
Hotel, the 2004 attack on the Australian embassy in Jakarta and the July 2009 hotel bombings in Jakarta. The
man thought to have been Noordins closest ally, Malaysian bomb-maker Azahari Husin, was killed in 2005 by
Indonesian security forces and in 2010, Dulmatin, the last main suspect in the 2002 Bali bombings was shot dead
by Indonesian security forces. In June 2012, bombmaker, Umar Patek, was sentenced to 20 years in prison for his
role in the 2002 Bali attacks marking the end of the ten-year investigation into the 2002 Bali bombings. The
perpetrators of the 2009 bombings have also been found and tried and sentenced, or killed during capture. There
have been no significant bombings or terrorist acts since 2009.

The Government has taken other measures to combat terrorism including establishing a National Counter
Terrorism Agency (Badan Nasional Penanggulangan Terorisme) pursuant to the Presidential Regulation
No. 46 of 2010 on National Counter Terrorism Agency as amended by Presidential Regulation No. 12 of 2012,
enacting new domestic anti-terrorism laws and amending anti-money laundering laws (see Financial System
Anti-Money Laundering Regime), establishing a special police task force called Detasemen 88, expanding
cooperation with foreign law enforcement agencies, participating in bilateral and multilateral counter-terrorism
activities and sending police and security officers to the United States and Canada for counter-terrorism training.
The Governments approach to terrorism includes de-radicalizing captured terrorists and re-integrating them into
civil society and establishing prevention-oriented programs in educational settings. The Government has also set
up a new agency separate from the police force to coordinate the Governments response to terrorism. The
Republic has become a signatory to the ASEAN Convention on Counter-Terrorism, which was signed on
January 13, 2007 and ratified by Law No. 5 of 2012 on the ASEAN Convention on Counter Terrorism, the U.S.-
ASEAN Joint Declaration on Cooperation to Combat International Terrorism and a number of other ASEAN
Joint Declarations on Cooperation to Combat International Terrorism, and it is a party or signatory to six U.N.
conventions relating to international terrorism.

On February 12, 2013, DPR passed the Law No. 9 of 2013 on Anti-Terrorism Financing Act. This Act
strengthens the role of the relevant institutions in combating terrorism. The Indonesian Financial Transactions
Reports and Analysis Centre (INTRAC/PPATK) (see Financial System Anti Money Laundering Regime)
will be able to block partially or in whole, direct or indirect, known to be or allegedly used or will be used, funds
for acts of terrorism and the Police Department will have the authority to investigate suspected terrorist fund
sponsors and fund receivers, which if proven guilty could be sentenced to a maximum of 15 years imprisonment
and a penalty of Rp1 billion.

Furthermore, the e-KTP or electronic identity card, as contemplated by Law No.24 of 2013 on amendment
of Law No.23 of 2006 on Civil Administration aims to effectively implement a life-long single identity number.
The idea of a single identity number had been previously provided for under Law No. 23 of 2006, as well as the
Presidential Regulation No. 26 of 2009 as last amended by Presidential Regulation No. 112 of 2013. However,
given recent concerns about individuals possessing multiple identification cards and the likely benefits of
electronic identity cards in combating money laundering for terrorist financing the efforts to implement the
e-KTP have grown significantly during 2013. With the issuance of Presidential Regulation No. 112 of 2013 as
the fourth amendment to the Presidential Regulation No. 26 of 2009, non-electronic identity card will only be
valid until December 31, 2014. See Financial System Anti-Money Laundering Regime for further details on
measures being taken by the Government to eradicate financing of terrorist activities.

49
Peace Agreement, Special Autonomy and Integration Projects in Aceh
In April 2005, President Yudhoyono announced the establishment of the Agency for Rehabilitation and
Reconstruction for the Region and Community of Aceh and Nias (BRR NAD Nias or BRR) pursuant to Perpu
No. 2 of 2005 on the Rehabilitation and Reconstruction Agency for Regions and Livelihood Communities in the
Province of Aceh and Nias Archipelago in the Province of Sumatera Utara which was later enacted as Law
No. 10 of 2005 on the Stipulation of Perpu No. 2 of 2005 on the Rehabilitation and Reconstruction Agency for
Regions and Livelihood Communities in the Province of Aceh and Nias Archipelago in the Province of Sumatera
Utara into Law. The BRR was established to accelerate the development of Aceh following the 2004 tsunami.
The objectives of the BRR have since been met and the deployment of the BRR in Aceh was terminated on
April 16, 2009. Upon the BRRs termination, the previous responsibilities of the BRR have been transferred to
local governments and various line ministries. BRR constructed more than 100,000 houses, rehabilitated
approximately 78,000 hectares of farm fields, provided approximately 14,000 units of farming tools and
machines, distributed approximately 30,000 heads of cattle, constructed approximately 15,000 fish ponds,
4,000 motor boats, 2,000 kilometers of roads and 230 bridges, and provided aid for medium scale enterprises.

In August 2005, the Government signed an agreement with the Free Aceh Movement (generally known by
its Indonesian initials, GAM) to end an armed struggle for an independent Acehnese state that had lasted for
more than 30 years. Under the agreement, GAM renounced its claim to independence and the Government
agreed to an amnesty program for GAM members. As part of the amnesty program, the Government released
from prison approximately 1,500 GAM members and is continuing the process of reintegrating them into society.
As part of the peace process, regional elections in Aceh were held in December 2006, with voter participation of
78.2%. Dr. Irwandi Yusuf and Mohammed Nazar, both former leaders of GAM, were declared winners of the
offices of Governor and Vice Governor, respectively, each with 38.2% of the vote.

The gubernatorial elections of Aceh Independent Election Commission (Komisi Independen Pemilihan
Aceh) took place on April 9, 2012. This is the second gubernatorial election since the 2005 peace agreement. On
April 17, 2012, Dr. H. Zaini Abdullah and Muzakir Manaf were elected as Governor and Vice Governor of Aceh,
respectively, for the period of 2012 to 2017.

The Aceh government enjoys special autonomy, including through the establishment of local political
parties, special provincial government bodies and special provincial courts implementing Islamic law. The
Government established the Communication and Coordination Forum to act as its representative in Aceh. The
central Government and the Aceh government have been working together on a program to reintegrate Aceh into
the rest of Indonesia by funding livelihood projects to aid former GAM members and victims of violence in
obtaining employment or land for farming and providing social security benefits to the disabled, for which an
aggregate of Rp0.4 trillion was allotted in the government budgets for 2006 through 2010. The program has been
dormant since 2010, with no further handouts. Six regional parties participated in the last election for members of
the Regional Peoples Representative Council of Aceh Province (Dewan Perwakilan Rakyat Daerah-Nanggroe
Aceh Darussalam), held on April 9, 2009 as part of the national legislative elections on the same date.

The Government believes that order and security have substantially improved in Aceh. Further, the
Government has promulgated Law No. 11 of 2006 on Local Government in Aceh, which empowers the people of
Aceh to participate in politics through the establishment of local political parties and promotes the rule of law
and the economic and social rights of every resident of Aceh. With local autonomy, the Aceh government has
been granted broad authority over matters in the region, with the exception of national issues, defense and
security, judicial matters, taxation and certain religious issues.

The Government has recognized the abundance of natural resources in Aceh and is promoting economic
growth, infrastructure development, poverty eradication, employment creation, education and cooperation in the
management of natural resources. For example, to promote economic growth and free trade, the Sabang Zone in
Aceh was established in 2000 as a free trade and free port zone to take advantage of its strategic geographical
position within the shipping industry.

Special Autonomy and Activities in Papua

A separatist movement remains active in the province of Papua, where a small portion of the population has
shown support for the Free Papua Movement (generally known by its Indonesian initials, OPM). While there
have been some violent incidents involving the armed wing of the OPM including those targeting the Indonesian
police authorities, the national army and police have taken measures to maintain security and order in the
province, and the Government has continued its policy of promoting social welfare in Papua. There have been no

50
military operations in Papua since 2004 and the Government is currently trying to address the concerns of certain
groups in Papua who were seeking greater independence by expanding the powers of the local government,
making investments in infrastructure, including the rebuilding of religious buildings, improving judicial access,
instituting affirmative action programs, working to resolve differences among local ethnic groups, increasing
welfare programs and infrastructure development and fostering business growth and investment in areas
populated by these groups. The province of Papua enjoys special autonomy through the establishment of a
regional assembly, government protection of indigenous rights and the recognition of indigenous courts. The
Government has implemented affirmative action and other policies intended to benefit indigenous minorities.
The Government believes this welfare approach has been successful; in 2007, 850 former members of OPM who
had fled to the neighboring country of Papua New Guinea made requests to return to Papua. Regency-level and
municipality-level elections held in Papua in 2007 proceeded smoothly with voter participation of over 60.0%,
and both native and non-native people of Papua were elected. The Government allocated special autonomy funds
to the Government of the provinces of Papua and West Papua, and to the local governments of Papuas and West
Papuas provinces, totaling Rp4.0 trillion, Rp3.9 trillion, Rp5.1 trillion, Rp5.3 trillion, Rp4.5 trillion,
Rp5.5 trillion, Rp6.2 trillion and Rp6.8 trillion in the Revised 2007 Budget, the Revised 2008 Budget, the 2009
Budget, the Revised 2010 Budget, the Revised 2011 Budget, the Revised 2012 Budget, the Revised 2013 Budget
and the Revised 2014 Budget, respectively. The Government introduced a Presidential Decree, consistent with
Government Regulation No. 54 of 2004 on the Papuan Peoples Council as amended by Government Regulation
No. 64 of 2008, relating to the establishment of a coordinating body for the management of the special autonomy
funds and certain regulations relating to financial management and the Papuan Peoples Council (Majelis Rakyat
Papua), a group of Papuan tribal chiefs tasked with considering and approving candidates for the role of
governor, approving regional regulations and addressing the needs of the indigenous community, religious
community and women in Papua. New council chiefs of the Papuan Peoples Council for the term from 2011 to
2015 were elected in September 2011.

In connection with the economic and social development of Papua, the local government has formulated the
New Deal Policy for Papua aimed at accelerating development in the provinces of Papua and West Papua, as
contemplated in Presidential Instruction No. 5 of 2007 on the Acceleration of Development of Papua and West
Papua. The development priorities contemplated in the New Deal Policy for Papua comprise maintenance of food
supply and alleviation of poverty, education, health, infrastructure and special treatment or affirmative action for
local residents of Papua. Development efforts are progressing.

Among other measures in Papua, the Government has promoted increased interaction between local
governments and communities, provided assistance to indigenous peoples and regulated illegal mining by
residents. Steps have also been taken for the repatriation of 702 persons from the neighboring country of Papua
New Guinea.

In 2011, the Government established the Unit for the Acceleration of Development in Papua and West
Papua (UP4B) based on Presidential Regulation No. 66 of 2011, as amended by Presidential Regulation No. 84
of 2011. The role of the UP4B is to coordinate, synchronize, facilitate, evaluate, and monitor all the government
development programs in Papua and West Papua. UP4B is responsible for ensuring that the programs designed
by central government in Jakarta fit the needs of the Papuan people.

In 2012, President Yudhoyono issued Presidential Regulation No. 84 of 2012 concerning the Government
Procurement of Goods and Services in relation with Acceleration of Development of Papua Province and West
Papua Province. This regulation provides greater opportunities to the people of Papua to participate in the
Governments procurement of goods and services by providing for, among other things: (i) a direct appointment
mechanism for qualified local entrepreneurs for procuring goods and construction works and other services with
a value ranging from Rp500 million to Rp1 billion in various Papua and West Papua Provinces regions; (ii) in
respect of procurement projects with a value of up to Rp5 billion, a tender process in which non-Papua or -West
Papua suppliers must establish a partnership or cooperation with local entrepreneurs; and (iii) in respect of
procurement projects with a value of more than Rp5 billion, the participation of non-Papua or -West Papua
suppliers but with priority being granted to those suppliers who have entered into cooperation with local
entrepreneurs.

In 2013, the provisions of Presidential Regulation No. 84 of 2012 continued to provide the basis for
accelerating the development of Papua and West Papua Province. The allocation of funds for such development
was Rp1.0 trillion in 2013 and is Rp2.5 trillion under the Revised 2014 Budget. Throughout 2013, the policies
and programs of the Government were communicated, disseminated and publicized throughout Papua in order
that the people of Papua can gain a better understanding. The communication, dissemination and publication

51
program will continue to be implemented among the people of Papua and other stakeholders, including the
international community, in coming years and is expected to result in a greater participation in accelerating the
development of Papua.

Human Rights Protections

With respect to the protection of human rights, the Government has promulgated, among others, Law No. 14
of 2009 on the Ratification of the Protocol to Prevent, Suppress, and Punish Trafficking in Persons, Especially
Women and Children, Supplementing the United Nations Convention Against Transnational Organized Crime;
Law No. 15 of 2009 on the Ratification of the Protocol Against the Smuggling of Migrants by Land, Sea and Air,
Supplementing the United Nations Convention Against Transnational Organized Crime; Law No. 19 of 2011 on
Ratification of Convention on the Rights of Persons with Disabilities; Law No. 6 of 2012 on Ratification of
International Convention on the Protection of The Rights of All Migrant Workers and Members of Their
Families; Law No. 9 of 2012 on Ratification of Optional Protocol to the Convention on the Rights of the Child on
the Involvement of Children in Armed Conflict; and Law No. 10 of 2012 on Ratification of Optional Protocol to
the Convention on the Rights of the Child on the Sale of Children, Child Prostitution and Child Pornography.

The initial five-year term of office of the commissioners of the National Commission on Human Rights
(NCHR) expired on August 30, 2012. The president extended the term and reinstated all the commissioners until
new commissioners were appointed by the president from candidates selected by the DPR. On October 22, 2012
the DPR appointed 13 new commissioners to hold office from 2012-2017. NCHR commissioners serve for a
five-year term and can only be re-appointed once.

Foreign Relations and International and Regional Organizations

Diplomatic Relationships and Multilateral and Bilateral Agreements
Indonesia maintains close diplomatic relationships with neighboring countries and its major economic
partners, which include, among others, the ASEAN member states, Japan, China, the Republic of Korea, the
United States and members of the European Union.

Indonesia is a member of a number of international organizations, including the United Nations (and certain
of its specialized agencies such as United Nations Economic and Social Commission for Asia and the Pacific,
Food and Agriculture Organization, International Civil Aviation Organization, International Labor Organization,
International Telecommunication Union, World Meteorological Organization, International Fund for Agriculture
Development, World Food Program, International Maritime Organization, United Nations World Health
Organization, United Nations Education, Scientific and Cultural Organization, United Nations World Tourism
Organization, United Nations Office for Outer Space Affairs, United Nations Committee on the Peaceful Uses of
Outer Space, United Nations Industrial Development Organization and United Nations Population Fund), the
IMF, the World Bank and certain World Bank-related organizations, the ADB and the Islamic Development
Bank (IDB). Indonesia is a signatory to the General Agreement on Tariffs and Trade (GATT) 1947 and the
GATT 1994, and is a member of the World Trade Organization (WTO). Indonesia has been a member or
signatory of other international groups and agreements including, among others, ASEAN, the Asia Pacific
Economic Cooperation (APEC) forum, Indian Ocean Rim Association for Regional Cooperation (IOR-ARC)
and Forum for East Asia-Latin America Cooperation (FEALAC). Indonesia is also a partner of the Asia-Europe
Meeting (ASEM) since 1996 and considers joining the Pacific Alliance (PA) as an observer.

As part of Indonesias commitment to strengthen regional cooperation, Indonesia has undertaken to become
a member in and to lead some regional organizations, including hosting the United Nations Framework
Conventions on Climate Change in Bali in December 2007, hosting and chairing the 9th WTO Ministerial
Conference in Bali on December 3-6 2013, and serving as a member of the International Telecommunication
Union Council (ITUC) for the term from 2010 to 2014. Elections for membership for 2014 to 2018 were held in
November 2014 and Indonesia is now serving as a member of ITUC for the four year term running from 2014 to
2018.

Indonesia has been an active member of the Indian Ocean Rim Association (IORA), the main regional
organization for the Indian Ocean, since its inception in 1997. It is now the Vice Chair of IORA for 2013-2015
working with Australia as the current Chair. Indonesia was also appointed as the future chair of IORA for a
period of two years at the 12th meeting of the Council of Ministers in Gurgaon, India, and will commence its
chairmanship in 2015. Indonesia sees the importance of the Indian Ocean as the worlds third largest ocean and a
lifeline of international trade and economy.

52
 Indonesia was one of the 12 founding economies of the Asia Pacific Economic Cooperation (APEC) in
1989 and continues to play an important role in the APEC process. The APEC Economic Leaders Meeting held
in Bogor in 1994, gave birth to the Bogor Goal: APECs cornerstone project that set the target of achieving open
and free trade and investment by 2010 for industrialized economies and 2020 for developing economies.
Indonesia hosted and chaired APEC, under the theme of Resilient Asia-Pacific, the Engine of Global Growth
in 2013. Under Indonesias chairmanship APEC has resolved key economic and financial issues shaping the
regions future prosperity, including important policy actions related to attracting sustainable investment,
promoting financial inclusion, and enhancing infrastructure development for better regional connectivity. The
last initiative was taken forward during APEC China 2014 through the development of an APEC Blueprint on
Connectivity (Blueprint). It is expected that this Blueprint will strengthen and deepen Indonesias integration in
the region, improve the quality of growth, and contribute to economic resilience. In addition, Indonesia is also
taking forward the issue of regional cooperation architecture by further enhancing synergy and complementarity
among regional and international cooperation forces.

Related to the infrastructure agenda of 2013, APEC Finance ministers created an APEC PPP Experts
Advisory Panel to develop a functioning PPP Center in the Ministry of Finance, and also to coordinate the
development of a PPP center in other economies in the region at a later stage. Since the Bali meeting, a number
of activities have been undertaken to support the development of the PPP Center. These activities have been
undertaken in two broad areas those designed to support the development of the PPP Center itself, and those
aimed at embedding the PPP Center into the processes of the Indonesian national bureaucracy. The Indonesian
PPP Center aims to align PPP project development facility processes with feasibility studies preparation that is
being done across Indonesian government institutions. The PPP Center is expected to be fully functional in early
2015.

Indonesia actively participates in several sub-regional cooperation forums that aim to promote the prosperity
of people residing in areas closer to borders and add value to untapped potential resources. The sub-regional
cooperation forums aim to improve connectivity, food security and trade facilitation. The forums also assert the
protection of the environment as one of the core areas for cooperation, combined with eco-tourism. This can help
ensure that the development in the sub-regions continues sustainably with the natural system. Such sub-regional
cooperation forums include the Brunei-Indonesia-Malaysia-Philippines East ASEAN Growth Area (BIMP
EAGA) and the Indonesia-Malaysia-Thailand Growth Triangle (IMT GT). These forums have served as the
building blocks for other regional cooperation efforts, including ASEAN, and their projects served as a test-bed
for ASEAN Connectivity projects. The most recent summits of the two groups on April 25, 2013 reaffirmed the
commitment of the respective heads of state to task the technical and relevant authorities and agencies to
implement the groups priority projects and to monitor the progress of the projects.

Indonesia is also a member or the Asia Cooperation Dialogue (ACD), and together with Bahrain, China,
Philippines, Kazakhstan, Qatar, Laos and the United Arab Emirates, became a co-prime mover in ACD Energy
Cooperation. As one of the co-prime movers, Indonesia actively engages in various activities relating to energy
cooperation and since 2005 has contributed towards the finalization and endorsement of the Energy Plan of
Action (PoA). The PoA, which was endorsed at the 12th ACD Ministerial Meeting in Manama, Bahrain on
November 25, 2013, is a concrete achievement of the ACD that is aimed at promoting cooperation in relation to
clean and renewable sources of energy. In respect of other regional forums, since 2002 Indonesia has been an
observer state at the Conference on Interaction and Confidence Building Measures in Asia (CICA). Indonesia is
currently conducting an internal review of the forums potential and exploring the feasibility of becoming a
member of CICA.

In recognition of Indonesias active role at the global level, President Yudhoyono was asked by the
United Nations Secretary General to co-chair, together with President Ellen Johnson Sirleaf of Liberia and Prime
Minister David Cameron of the United Kingdom, the High-Level Panel of Eminent Persons on the Post-2015
Development Agenda. The Panel started its work in July 2012 and produced a report in May 2013 which contains
vision, framework and recommendations on the development agenda beyond 2015. This report is recognized as
the main input for the United Nations Secretary General report to the United Nations General Assembly and for
the intergovernmental process on the post-2015 development agenda facilitated by the United Nations.

On September 20, 2011, Indonesia became one of the eight founding governments, along with Brazil,
Mexico, Norway, the Philippines, South Africa, the United Kingdom, and the United States, and an active
member of the Open Government Partnership (OGP). With its current 64 members, OGP has grown rapidly as
an important multilateral movement to promote transparency, empower citizens, eradicate corruption, and
harness new technology to strengthen governance. Indonesia views that its active involvement within OGP,

53
including the hosting of the OGP Asia Pacific Regional Conference in Bali on May 6-7, 2014 as OGP
Government Lead Chair 2014-2015, showcases its commitment towards a transparent and credible government.

In the field of international development cooperation, in 2013-2014 Minister of National Development

Planning Mrs. Armida Alisjahbana (along with Mrs. Ngozi Okonjo-Iweala, Minister of Economic Coordination
and Finance of Nigeria, and Mrs. Justine Greening, Minister of Development Cooperation UK), co-chaired the
Global Partnership for Effective Development Cooperation.

Indonesia also seeks to lead other developing countries through its membership in the following
organizations of developing countries: the Non-Aligned Movement, the Organization of the Islamic Conference,
the Group of 77 and China, the Developing 8 and the Group of 15. Indonesia is the only ASEAN member state
that concurrently enjoys membership of The Group of Twenty Finance Ministers and Central Bank Governors
(G-20), which brings together leaders of systemically important industrialized and developing economies to
discuss key issues in the global economy. Indonesia actively contributes and reflects the interests of developing
countries in discussions concerning current global economic and financial affairs.

The Republic has been a member of OPEC since 1962. However, since 2007, Indonesia has been a net
importer of oil (determined on an annual basis). In light of the change in its status from that of a net exporter to a
net importer of oil, the Government suspended its full membership in OPEC with effect from January 2009. The
Government expects to increase its future oil production by attracting more investment in oil exploration and
infrastructure and through the use of new technology, and expects to reactivate its OPEC membership when its
production increases and it becomes a net exporter of oil again.

Indonesia is one of the five founding members of ASEAN, an organization that was established to foster
economic, social, cultural and scientific relations among its members, and is now committed to reducing trade
barriers among its member states. ASEAN now includes Brunei Darussalam, Cambodia, Indonesia, Laos,
Malaysia, Myanmar, Philippines, Singapore, Thailand and Vietnam. The ASEAN member states have entered
into various agreements on mutual assistance and cooperation in several areas.

ASEAN seeks to promote its competitive edge in the world market through the elimination of intra-regional
tariffs and non-tariff barriers, including through the ASEAN Free Trade Area, which was established in 1992 and
was fully completed in 2002. In order to strengthen the free flow of goods, the ASEAN member states have
signed the ASEAN Trade in Goods Agreement (ATIGA) which seeks to integrate all existing ASEAN
commitments and initiatives and new measures related to trade in goods within a single comprehensive
framework. At the 14th ASEAN Summit held in Cha-am Hua Hin, Thailand in 2009, three key agreements were
concluded: the ATIGA, the ASEAN Comprehensive Investment Agreement and the Protocol to Implement the
Seventh Package of Commitments under the ASEAN Framework Agreement on Services (AFAS).

In December 1995, the ASEAN member states, including Indonesia, entered into the AFAS to promote a
liberal trading framework for trade in services among member states. In the fourth quarter of 2008, ASEAN
member states signed the seventh AFAS Protocol as part of an ongoing process aimed at eliminating
substantially all restrictions on trade in services and to realize the free flow of services by 2015. The ASEAN
member states ratified the AFAS on October 28, 2010. Currently, ASEAN is also in the process of negotiating an
ASEAN Trade in Services Agreement which will replace AFAS.

To speed the liberalization of financial services along with deepening financial integration in the region, and
in order to meet the goals of preventing financial crises and realizing stable economic growth, the ASEAN
Finance Ministers have continued the negotiation process on financial services liberalization in the region. On
May 4, 2011, ASEAN Finance Ministers signed the Protocol to Implement the Fifth Package of Financial
Services Commitments in Hanoi. Meanwhile, the discussions to finalize the Protocol to Implement the Sixth
Package of Financial Services Commitments as well as the negotiation process have been completed.

To improve investment flows, the ASEAN member states signed the Framework Agreement for an ASEAN
Investment Area in October 1998 to establish the ASEAN region as a competitive investment area by January
2010 and achieve free flow of investments in the region by 2020. In the spirit of this framework, Japan and
Indonesia entered into a bilateral economic partnership agreement in August 2007. To improve investment flow,
the ASEAN member states signed the ASEAN Comprehensive Investment Agreement (the ACIA) on
February 26, 2009, which is designed to address the current global economic environment to enable ASEAN to
continue to attract investment flows through the adoption of a free and open investment regime. The ACIA is
expected to strengthen investment liberalization through extensive promotion and facilitation programs.

54
 During the October 2003 ASEAN summit conference in Bali, the leaders of the ASEAN member states
endorsed the Declaration of ASEAN Concord II, or the Bali Concord II, which envisions the establishment by
2020 of an ASEAN Community consisting of three pillars, namely security cooperation, economic cooperation
and socio-cultural cooperation. The Bali Concord II also reaffirmed the ASEAN Vision 2020, which had been
adopted by ASEAN in 1997, to create a stable, prosperous and highly competitive ASEAN economic region in
which there is a free flow of goods, services and investment, a freer flow of capital, equitable economic
development and reduced poverty and socio-economic disparities by 2020. In November 2004, ASEAN adopted
the Vientiane Action Program to serve as a blueprint for the development of ASEAN over the following six
years. The Vientiane Action Program seeks to deepen regional integration of the ASEAN states and narrow the
development gap between the more developed and less developed ASEAN states.

During the January 2007 ASEAN summit conference in Cebu, Philippines, the ASEAN states agreed to
accelerate the development of the ASEAN Community and common trade market by advancing the targeted
completion date by five years from 2020 to 2015. At the Cebu summit, ASEAN leaders also signed the ASEAN
Convention on Counter-Terrorism, which is ASEANs first regional anti-terrorism pact, a declaration on the
protection and promotion of the rights of migrant workers within member states and a declaration calling for
approval of an ASEAN Charter, the associations first, which would formalize the decision-making procedures
within the association.

The ASEAN Charter was signed at the 13th ASEAN summit conference held in Singapore in November
2007 and entered into force on December 15, 2008. During the ASEAN summit conference in Singapore, the
ASEAN member state leaders also signed the Blueprint on ASEAN Economic Community, which will guide
implementation of the ASEAN Economic Community by 2015 to transform ASEAN into: (i) a single market and
production base; (ii) a highly competitive economic region; (iii) a region of equitable economic development;
and (iv) a region fully integrated into the global economy.

At the 14th ASEAN summit conference on March 1, 2009, ASEAN leaders signed the Cha-am Hua Hin
Declaration on the Roadmap for the ASEAN Political-Security Community, the ASEAN Economic Community
and the ASEAN Socio-Cultural Community, and the Initiative for ASEAN Integration (IAI) Strategic
Framework and IAI Work Plan 2 (2009-2015).

At the 24th ASEAN Summit in NawPyi Taw, Myanmar, on May 11, 2014, ASEAN leaders signed a
Declaration on Realization of the ASEAN Community by 2015. The ASEAN leaders agreed to intensify efforts
in realizing the ASEAN Economic Community by 2015 and to implement initiatives to achieve the ASEAN
Single Market and Production Base, including trade initiatives such as an ASEAN self-certification system and
ASEAN Single Window, ASEAN Customs Transit System, as well as other measures for the free flow of goods,
services, investment and skilled labor and better flow of capital. The ASEAN leaders also agreed to accelerate
efforts to enhance regional connectivity through the implementation of the Master Plan on ASEAN Connectivity,
which is critical in creating a more efficient regional market, enhancing ASEAN competitiveness and advancing
the community building process. ASEAN will further promote equitable economic development by assisting
ASEAN Member States in meeting the commitments to operationalize the ASEAN Framework on Equitable
Economic Development (AFEED) and advance the interest of SMEs and entrepreneurs in the region. ASEAN
leaders further reiterated their commitment to strengthen ASEANs external economic integration through the
ongoing ASEAN Plus One Free Trade Agreements (ASEAN+1 FTAs) with Dialogue Partners and the Regional
Comprehensive Economic Partnership (RCEP).

The ASEAN states have entered into discussions and agreements with their major non-ASEAN trading
partners. In November 2002, the ASEAN states signed an economic cooperation agreement with China, agreeing
to establish the ASEAN-China Free Trade Area (ACFTA) by January 1, 2010 for six ASEAN states, including
Indonesia, and by 2015 for the other four ASEAN states. As part of these efforts, in November 2004, ASEAN
and China signed the trade in goods chapter of their economic cooperation agreement. In January 2007, ASEAN
and China signed the services chapter of their economic cooperation agreement, covering more than 60 services,
with the goal of increasing market access for services and service providers and expanding trade in services
between ASEAN and China. The ASEAN states and China have also agreed to work together to enter into the
investment chapter of their economic cooperation agreement.

In November 2007, the ASEAN states (except Thailand) and the Republic of Korea signed free trade
agreements on trade in goods and services. In July 2008, ASEAN and the Republic of Korea agreed to revise the
final protocol on the accession of Thailand to the ASEAN-Korean free trade agreement on trade in goods and
services. The agreement and its related documents were executed during the ASEAN Economic Ministers

55
meeting in August 2008 in Singapore. In February 2009 in Hua Hin, Thailand joined and signed the Protocols on
the Accession of Thailand into the Trade in Goods Agreement and Trade in Services Agreement. The ASEAN-
Korea Investment Agreement was signed at the ASEAN-Korea Commemorative Summit in Jeju, Korea in June
2009.

The ASEAN states have also concluded a single-undertaking free trade agreement with Australia and New
Zealand (AANZFTA), making it the most comprehensive agreement ever concluded by ASEAN with non-
member countries. Indonesia has ratified the AANZFTA on May 6, 2011. ASEAN has also concluded a trade in
goods agreement with Japan and India. The negotiations on trade in services and investments between ASEAN
member states and India commenced in October 2008 and substantive discussions are ongoing. This is expected
to result in an ASEAN-India comprehensive economic cooperation agreement. However, negotiations for a trade
in services agreement between ASEAN member states and Japan have stalled. The ASEAN member states are
also awaiting developments regarding a possible free trade agreement with the European Union, and are
exploring the possibility of enhancing cooperation in areas such as trade and investment with the Gulf
Cooperation Council (comprising Bahrain, Kuwait, Oman, Saudi Arabia, Qatar and the United Arab Emirates)
and with Mercosur (comprising Brazil, Argentina, Paraguay and Uruguay).

ASEAN announced that from December 2005, it will regularly convene an East Asia Summit, which, in
addition to the ASEAN member states, will include Australia, China, India, Japan, New Zealand and the
Republic of Korea. The 2011 East Asia Summit (EAS) was held in Bali, Indonesia from November 14 to
November 19, 2011. The Summit was attended by the Heads of State/Government of ASEAN Member States,
Australia, the Peoples Republic of China, the Republic of India, Japan, the Republic of Korea, and the United
States of America. The Foreign Minister of the Russian Federation and the Minister of Foreign Affairs of New
Zealand attended the Summit on behalf of their respective countries. The participants emphasized commitment
on the EAS as a forum for dialogue on broad strategic, political and economic issues of common interest and
concern with the aim of promoting peace, stability and economic prosperity in East Asia. They also emphasized
that ASEAN remains the driving force between the other participants of the East Asia Summit.

As a follow up to the 2011 Summit, the seventh EAS was held in Phnom Penh, Cambodia on November 20,
2012. The 2012 Summit was attended by Heads of State of the ASEAN member states, as well as by
representatives from Australia, China, India, Japan, New Zealand, the Republic of Korea and the United States of
America. The Russian Federation was represented by its Foreign Minister. The role of the EAS as a forum for
strategic dialogue and cooperation on political, security and economic issues was noted by the attendees. The
EAS additional role in acting as a regional forum for bringing together the worlds most dynamic economies in
order to promote sustained economic growth at regional and global levels was also noted. Furthermore, the EAS
leaders reaffirmed their commitment to enhance international coordination and cooperation by collaborating with
regional and international financial institutions like the ADB and the IMF.

Indonesia entered into an economic partnership agreement with Japan (the IJEPA), effective July 1, 2008.
The IJEPA envisages cooperation between the two countries in the areas of trade in goods and services, rules of
origin, customs procedures, investments, movement of natural persons, intellectual property, government
procurement, competition, improvement of the business environment and the promotion of business confidence.
According to Article 6 of the IJEPA, both parties agreed that the Agreement could be reviewed every five years.
In 2013, Indonesia and Japan agreed to review the IJEPA. As a follow-up, the Government of Indonesia
delivered the terms of references (TOR) general review of the IJEPA to the Embassy of Japan in Jakarta on
April 21, 2014. The Government of Japan is currently examining Indonesias TOR on General review of the
IJEPA.

Indonesia is engaged in more than 60 investment treaties which include both bilateral and multilateral
schemes. Currently, Indonesia is in the process of reviewing all existing investment treaties in order to create an
Indonesian investment agreement template. The review process started in the middle of 2013. All negotiations on
investment agreements were and will temporarily be on hold until the review is completed.

The Preferential Trade Agreement (PTA) between Indonesia and Pakistan was signed on February 3, 2012
and ratified by Presidential Regulation No. 98 of 2012 on November 17, 2012. To enable the operation of the
Pakistan PTA, the Ministry of Finance issued Regulation No. 26/PMK.011/2013 relating to the tariff Indonesia
will impose as a result of the Pakistan PTA.

Negotiations between Indonesia and the Republic of Korea on the Indonesia-Korea Comprehensive
Economic Partnership (IK-CEPA) were initiated on July 12, 2012. The negotiation process is still ongoing and

56
the seventh round of negotiations was held in Seoul from February 25, 2014 through February 28, 2014. The
parties failed to reach a consensus during this round of negotiations due to issues concerning trade goods,
investment, trade in services, trade remedies, cooperation, capacity building, as well as industrial technology
cooperation. The next round of negotiations has not been scheduled.

In 2011, Indonesia began actively participating in negotiations for the Indonesia-EFTA Comprehensive
Economic Partnership Agreement (IE-CEPA) with the European Free Trade Association (EFTA), whose
member states include Iceland, Liechtenstein, Norway and Switzerland. The negotiations focus on topics such as
trade in goods, trade in services, investment, and government procurement. Initial negotiations were held in
Jakarta, Indonesia, from January 31 to February 2, 2011. The following seven rounds of negotiations rotated
between Indonesia and Switzerland. The eighth round of negotiations was held in Alesund, Norway, from
October 9 to October 11, 2013.

On April 18, 2011, Indonesia and Australia held a round of pre-negotiation consultations in Jakarta to
discuss guiding principles for a future Indonesia-Australia Free Trade Agreement (IAFTA). Both countries hope
to model the agreement as an Economic Partnership Agreement (EPA) to reflect wider cooperation between the
countries economic sectors. The first round of negotiations on the EPA was held on September 26-27, 2012 in
Jakarta and focused on finalizing the guiding principles and objectives of the EPA as well as a roadmap for future
work. Both countries agreed to communicate between negotiating sessions to refine the issues, and to explore
scheduling future rounds of negotiations with the annual meetings of the Indonesia Australia Working Group
on Agriculture, Food and Forestry Cooperation (WGAFFC).

On August 28, 2014, Indonesia and Australia entered into a Joint Understanding on a Code of Conduct
between the Republic and Australia in Bali. The code of conduct was established to resolve legacy issues
relating to the 2013 allegations that Australia conducted wiretapping of Indonesian officials. As a result of the
allegations, Indonesia recalled its Ambassador from Canberra and suspended its cooperation with Australia in
several areas including the exchange of information, military cooperation and cooperation in relation to the
prevention of human trafficking. Following the signing of the agreement, all aspects of bilateral relations
between Indonesia and Australia have been restored.

On September 24, 2011, ASEAN Finance Ministers and the President of the Asian Development Bank
signed a shareholders agreement on the establishment of the ASEAN Infrastructure Fund (the AIF) to finance
infrastructure projects across the region. As one of the largest ASEAN-led initiatives, the AIF is aimed toward
mobilizing the regions resources in order to meet its growing infrastructure requirements. The Infrastructure
Fund is being set up with an initial equity contribution of U.S.$485.2 million, of which U.S.$335.2 million came
from nine ASEAN members, and the remaining U.S.$150 million was provided by the ADB. Indonesia is the
second largest ASEAN contributor with a U.S.$120 million equity investment and is currently chairing the AIF
for from 2013 through 2015. Indonesia is currently also taking a central role in the AIF operations by acting as
Chairman of AIF Board of Directors. The AIF is expected to finance up to U.S.$300 million a year for various
projects for the development of road, rail, power, water and other critical infrastructure. Projects are selected
based on sound economic principles and financial rates of return and their potential impact on poverty reduction.
The AIF was incorporated in Malaysia in April 2012 as a limited liability company and became fully operational
in 2013.

Indonesia participates in the Asian Bond Market Initiative (ABMI), an initiative sponsored by the
ASEAN+3 group and supported by the ADB, to develop efficient bond markets in Asia. The ASEAN+3 group
has also formed the East Asia Business Council, which cooperates on energy and non-traditional security issues,
and since April 2005 has undertaken a study on the feasibility of an ASEAN+3 free trade arrangement, which
would create a market of almost two billion people and would be the largest in the world. ABMI has endorsed
implementing the ABMI New Roadmap+. This will be a significant step forward in ABMIs efforts to strengthen
the regional financial safety net and contribute to sustainable economic growth and integration in the region.

In May 2010, the ASEAN+3 endorsed the establishment of the Credit Guarantee and Investment Facility
(CGIF) as a trust fund under the ADB with an initial capital of U.S.$700 million. CGIF aims to develop and
strengthen local currency and regional bond markets so that investment-grade rated corporations can access those
markets and avoid currency and maturity mismatches. After the endorsement, CGIF started operating in 2012.
Indonesia serves as one of the CGIF Board of Directors, representing ASEAN Member States. As part of CGIF
operations, some Indonesian companies had tapped into the CGIF facility for their bond issuances. This helps the
economy increase private investment and supports the authoritys efforts to deepen the financial market.

57
 On May 3, 2012, in Manila, ASEAN+3 finance ministers and central bank governors agreed to strengthen
the Chiang Mai Initiative Multilateralization (CMIM), including doubling its total size, increasing the IMF
de-linked portion lengthening its periods of support and introducing a crisis prevention function. In addition,
ASEAN+3 members committed to enhance the effectiveness of CMIM implementation from time to time by,
among others, conducting fire drills in which Indonesia was to actively participate. They also agreed to enhance
the ABMI by adopting a new roadmap. The agreement was reached with the strong belief that strengthened
financial cooperation will strengthen the regional financial safety net and promote sustainable growth in the
region. Under the new agreement, the ASEAN+3 member countries committed to provide regional financial
crisis prevention and resolution facilities to support liquidity and relieve balance of payment difficulties faced by
member countries totaling U.S.$240 billion.

At the most recent meetings (May 3, 2014, in Kazakhstan and May 3, 2013, in India), ASEAN+3, Finance
Ministers and Central Bank Governors reiterated the commitment to further strengthen the CMIM as part of the
regional financial safety net. ASEAN+3 is also considering ways to seek an effective cooperative relationship
with the International Monetary Fund (IMF) and other multilateral financial institutions in the areas of
surveillance, liquidity support arrangement and capacity development. At a national level, Indonesia promotes
alignment between CMIM procedures and national procedures to enhance the effectiveness and efficiency of
national crisis management.

ASEAN+3 Macroeconomic Research office (AMRO) was established in Singapore in April 2011 by
ASEAN+3, as an independent regional surveillance unit to monitor and analyze regional economies and support
CMIM decision-making. To further consolidate the endeavour, ASEAN+3 Finance Ministers and Central Bank
Governors have agreed to transform AMRO to an international organization. This marks an important milestone
in members joint efforts to enhance the effectiveness of the financial cooperation among ASEAN+3 countries.
AMRO will also further enhance cooperation with relevant multilateral and regional financial institutions
including the Asian Development Bank (ADB), the IMF, and the Bank for International Settlements (BIS),
particularly in areas which will bolster the institutional capacity of AMRO. The AMRO Agreement was signed
on October 10, 2014 in Washington D.C. at the IMF/World Bank Annual Meeting.

During the 21st ASEAN Summit in Phnom Penh, Cambodia in November 2012, the ASEAN members
decided that the date of realization of the ASEAN Community would be December 31, 2015. At the Summit, the
ASEAN members also adopted the ASEAN Human Rights Declaration as a comprehensive measure to promote
and protect the civil, political, economic and cultural rights of the people of ASEAN. In addition, ASEAN
leaders also signed and/or adopted the Bali Concord III Plan of Action and the Concept Paper on the
Establishment on ASEAN Regional Mine Action Centre to further enhance cooperation among members in this
area. Furthermore, ASEAN officially launched the Institute for Peace and Reconciliation (AIPR) at the Summit.
The AIPR was launched with a view to promote conflict resolution and conflict management, and to enhance
peace, security and stability in the ASEAN region.

China has established a mission to ASEAN and appointed its first resident ambassador to ASEAN in 2012.
As of October 31, 2014 there were 81 accredited ambassadors to ASEAN from non-member countries. ASEAN
also established 34 ACTCs (ASEAN Committee in Third Countries) which consist of ASEAN member state
ambassadors in appointed non-member countries. These accomplishments show the strengthening of ASEAN
cooperation both internally and externally.

In 2012, Indonesia ratified the second protocol to amend the Agreement on Trade in Goods under the
Framework of Comprehensive Economic Cooperation among the governments of the member countries of
ASEAN and the Republic of Korea. It was ratified under Presidential Regulation No. 61 of 2012.

The Government has also entered into avoidance of double taxation agreements with 63 countries and
regions, including agreements with Hong Kong, Croatia and Morocco, which entered into force on January 1,
2013.

58
 The following table shows Indonesias capital participation in major international financial organizations as
of September 30, 2014.

Capital Participation in International Financial Organizations

As of September 30, 2014
contributed capital
Date of
Name of organization admission Subscribed Paid in
(in millions of U.S. dollars)
Asian Development Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1966 8,878.9 396.2
International Monetary Fund(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1996(2) 3,214.4 3,214.4
World Bank Group
International Bank for Reconstruction and Development . . . . . . . . . . . . 1966(2) 1,807.2 135.6
International Development Association . . . . . . . . . . . . . . . . . . . . . . . . . . 1968 16.1 16.1
International Finance Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1968(3) 30.1 30.1
Multilateral Investment Guarantee Agency . . . . . . . . . . . . . . . . . . . . . . . 1986 20.0 3.8
Islamic Development Bank(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1975 628.4 192.1
International Islamic Trade Finance Corporation . . . . . . . . . . . . . . . . . . 1992 2.1 2.1
Islamic Corporation for Insurance of Investment and Export Credit . . . 1992 0.4 0.2
International Fund of Agricultural Development . . . . . . . . . . . . . . . . . . . . . . 1977 62.0 54.4
Common Fund for Commodities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1980 1.5 1.3
The Islamic Corporation for the Development of the Private Sector . . . . . . . 1992 9.5 6.9
Credit Guarantee and Investment Facility (2012) . . . . . . . . . . . . . . . . . . . . . . 2012 12.6 12.6
ASEAN Infrastructure Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2012 120.0 72.5
Source: Ministry of Finance
(1) Denominated in SDR of the IMF. Converted to U.S. dollars using the exchange rate on September 30, 2014 of U.S.$1.545890 to SDR 1.
(2) Before Indonesia rejoined the IMF and The International Bank for Reconstruction and Development in 1966, it had become a member of
these organizations in 1954 and had resigned its memberships in 1965.
(3) Before Indonesia rejoined the International Finance Corporation in 1968, it had become a member in 1956 and had resigned its
membership in 1961.
(4) Denominated in Islamic dinars, or ID (ID 1 = SDR 1). See footnote (1) above.

Ongoing Delimitation Issue with Malaysia

Indonesia and Malaysia have been conducting negotiations regarding the delimitation of the two countries
maritime boundaries in the Technical Meeting on Maritime Delimitation. The most recent discussion occurred in
December 2012 during the ninth annual consultation between Indonesia and Malaysia. The technical meetings
were a continuation of maritime delimitation negotiations conducted by the two countries since 1969.

The negotiations in the Technical Meeting on Maritime Delimitation between Malaysia and Indonesia
pertain to the exclusive economic zone in the Malacca Strait, the territorial sea in the southern part of the
Malacca Strait, the South China Sea (exclusive economic zone) and the Sulawesi Sea (territorial sea (exclusive
economic zone) and continental shelf).

The 27th Technical Working Group on Maritime Delimitation between Indonesia and Malaysia took place
during December 2014.

Natural Disasters and Infections

Mudflow Accident at Sidoarjo, East Java
In May 2006, a drilling accident occurred at a gas exploration site near Sidoarjo, East Java, resulting in a
mudflow of approximately 100,000 to 120,000 cubic meters per day. As of December 15, 2014, the mudflow has
not abated and continues at a rate of 30,000 to 50,000 cubic meters per day. The mudflow rate has remained
relatively consistent since 2012. The site is located in the Brantas block, which is owned jointly by Lapindo
Brantas, Inc. (Lapindo) (50.0% interest), a subsidiary of PT Energi Mega Persada Tbk; PT Medco E&P Brantas
(32.0% interest), a subsidiary of PT Medco Energi International Tbk; and Santos Ltd. of Australia (18.0%
interest).

In September 2006, the Government formed a task force to oversee the response to this disaster. On April 8,
2007, President Yudhoyono issued Presidential Regulation No. 14 of 2007 establishing a permanent board, called

59
the Sidoarjo Mudflow Management Board (Badan Penanggulangan Lumpur Sidoarjo or BPLS), to replace this
task force. The BPLS has been mandated with the task of arranging for the reconstruction and rehabilitation of
areas adversely affected by the mudflow including the reconstruction of affected infrastructure. Presidential
Regulation No. 14 of 2007, as amended by Presidential Regulation No. 48 of 2008, also provided that the
Government would bear certain costs resulting from the mudflow, including the cost of relocating a toll road,
power lines and gas pipelines from the areas now inundated by mud. The Presidential Regulation No. 40 of 2009
on the Second Amendment to Presidential Regulation No. 14 of 2007 shifts the financial and execution
responsibility of flowing the mud from the affected area to the Porong River from Lapindo to BPLS. In 2011, the
Presidential Regulation No. 68 of 2011 on the Third Amendment to Presidential Regulation No. 14 of 2007
asserts such compensation will be made gradually with a specific scheme.

From January 2008 to October 31, 2014, the Government spent approximately Rp5.50 trillion in public
funds for a variety of relief, rehabilitation and construction efforts. Such efforts included providing land
compensation, constructing a mud reservoir, building new roadways, building drainage and irrigation canals,
providing social assistance to affected people (including temporary living, evacuation and house rental
assistance) and financing certain geological investigations and socio-economic studies in disaster-affected areas.

For 2013, the Government allocated Rp2.25 trillion to continue the above-mentioned construction and relief
efforts. Due to decreasing development activities after the completion of a main arterial road, the Government
lowered this allocation to Rp850 billion for 2014. This has been further reduced to Rp781 billion in the 2015
Budget. The Government estimates that the total direct and indirect losses resulting from the mudflow disaster
could reach approximately Rp33.0 trillion. The main targeted BPLS activities are expected to be completed by
the end of 2015. Such activities include full compensation for all of the affected households, construction of a
mud-dike and its accessories, a new main road, and a pipeline for primary clean water conveyance, among others.
Presidential Regulation No. 37 of 2012 on The Fourth Amendment to Presidential Regulation No. 14 of 2007
states that the Government decided to compensate the affected people in the area currently unsuitable for
settlement, which will involve relocating approximately 4,600 households (approximately 16,000 people), at an
expected total cost of approximately Rp4 trillion. Presidential Regulation No.33 of 2013 has been issued as the
Fifth Amendment to Presidential Regulation No. 14 of 2007 that further clarifies and amends areas for
management of mudflow outside the affected area map of March 22, 2007 as contemplated by Presidential
Regulation No. 14 of 2007 and provides certainty on settlement of gradual compensation.

Other Natural Disasters

Indonesia has suffered several other natural disasters in recent years, including earthquakes and flooding. A
tsunami in Pangandaran in 2006 caused 413 deaths, destroyed 1,910 homes and caused estimated damage
amounting to over Rp1.3 trillion. An earthquake in Jogjakarta, Central Java in May 2007 caused 4,626 deaths,
destroyed 36,599 homes and caused damage amounting to Rp29.2 trillion. An earthquake measuring 7.9 on the
Richter scale struck Bengkulu and West Sumatera on September 12, 2007, resulting in 92 deaths, 918 injured and
the evacuation of approximately 141,216 people. Strong earthquakes hit Nusa Tenggara Barat and Gorontalo in
August and November 2008, respectively. In January 2009, an earthquake measuring 7.2 on the Richter scale
occurred in Manokwari, West Papua. The earthquake resulted in the death of one person, with 471 injured,
17,449 displaced and 5,393 buildings destroyed. Total damage and losses from the disaster amounted to
Rp525,325 billion. An earthquake measuring 7.2 on the Richter Scale struck Sulawesi on February 12, 2009,
damaging hundreds of buildings. Further, on September 30, 2009, an earthquake measuring 7.9 on the Richter
scale struck West Sumatera, resulting in 1,195 deaths and the destruction of 140,551 houses. Several powerful
earthquakes also struck West Papua, Tasikmalaya in West Java, Jambi and other locations in Indonesia in the
same year.

Several regions of Indonesia were hit by floods during the 2006 to 2007 rainy season, including North
Sumatera, Nanggroe Aceh Darussalam, Riau, Manggarai and Morowali. Floods in Jakarta in February 2007
caused the deaths of 48 people, led to the evacuation of 522,569 people and resulted in an estimated Rp7 trillion
of damage. In response, the government of Jakarta conducted a review of the citys design to identify ways to
prevent future flooding, such as developing canals and removing houses built in the flood zone of river banks.
Flooding and landslides in Central and East Java that occurred between the end of 2007 to early 2008 caused
122 deaths and an estimated Rp18,874.99 billion of damage. Gorontalo and West Java suffered floods and
landslides in October and November 2008, respectively. In 2009, floods hit the Regency of Tanah Datar in West
Sumatera, Mandailing in North Sumatera and Situ Gintung in Banten, and in 2010 there was flooding in West
Papua as described below.

60
 In 2010, there were three large-scale natural disasters. The first was a flash flood in the Gulf Wondama,
West Papua where as many as 170 people died with total damages and losses of Rp280.6 billion. This was
followed by an earthquake and tsunami in the Mentawai Islands, West Sumatera with a 447 deaths and total
damages and losses of Rp3.8 trillion. The eruption of Mount Merapi in Central Java and D.I. Yogyakarta claimed
the lives of 386 victims and total damage and losses were estimated at approximately Rp3.6 trillion.

In July 2013, an earthquake in Aceh resulted in 35 deaths and 2,418 injuries. Following the earthquake
48,563 people were evacuated. The provincial government set aside a relief fund of approximately U.S.$8
million while the Indonesian National Board for Disaster Management contributed a further U.S.$4 million
towards emergency responses. The President also announced a system of grants for owners suffering damage to
their houses, ranging between U.S.$1,000 to U.S.$4,000.

Mount Sinabung in North Sumatra remains active. As of January 2014, there have been 37 recorded deaths
with 33,210 people being evacuated resulting in an estimated loss of Rp1.8 trillion.

In February 2014, Mount Kelud in East Java erupted affecting East Java, Central Java and the
D.I. Yogyakarta areas. As a result of the eruption, 25,151 people were evacuated with seven recorded deaths and
1,423 injuries, resulting in an estimated loss of Rp1.2 trillion.

On December 12, 2014, a landslide occurred in Banjarnegara, Central Java as a result of heavy rainfall in
the area. There were 95 recorded deaths and 13 people recorded missing. The Head of Data and Information
Center of National Disaster Mitigation Agency (Badan Nasional Penanggulangan Bencana) ceased the search
for victims on December 21, 2014. The incident resulted in the relocation of 1,225 villagers to Karangkobar
village, 613 villagers to Punggerlan village, 120 to Wanayasa village and 50 to Banjarmangu village. The
administration has also provided 1,000 hectares in Ambal village in Karangkobar, Banjarnegara, for 35 families
to be relocated to. The Governments current priority is to relocate villagers whose houses were affected by the
landslide.

Total government expenditure related to post-natural disaster relief efforts, rehabilitation and reconstruction
(other than expenditure related to the December 2004 earthquake and tsunami and the March 2005 North
Sumatera earthquake) was Rp1.9 trillion in 2007, Rp2.9 trillion in 2008, Rp2.2 trillion in 2009 and Rp5.0 trillion
in 2010. Rp3.9 trillion was allocated in the 2011 Budget and the Revised 2012 Budget towards such expenditure,
while Rp998.7 billion was allocated in the Revised 2013 Budget. Total actual government expenditure related to
post-natural disaster relief efforts in 2011 was Rp3.9 trillion (100.0% of the allocation in the Revised 2011
Budget). In 2012, the actual post-natural disaster relief efforts was Rp1.05 trillion (26.2% of Rp4.0 trillion, the
allocation in the Revised 2012 Budget) as no major natural disasters occurred in the year. In 2013, the actual
post-natural disaster relief expenditure was Rp555 billion.

The Government has allocated Rp3.3 trillion for post-natural disaster relief efforts, rehabilitation and
reconstruction under the Revised 2014 Budget.

Avian Influenza
The first human case of avian influenza in Indonesia was detected in July, 2005. As of May 31, 2014, the
Government reported 197 confirmed human cases of the disease in Indonesia, including 165 deaths. In spite of
the implementation of avian influenza prevention and control measures, outbreaks in animals, particularly in
birds, and in humans are expected to occur from time to time, as long as avian influenza remains endemic in
many provinces in Indonesia. Human cases have been decreasing every year, with the exception of 2011, from 55
cases in 2006, 42 cases in 2007, 24 cases in 2008, 21 cases in 2009, nine cases in 2010, 12 cases in 2011, nine
cases in 2012, three cases in 2013 and one case in the first quarter of 2014. To date, no human-to-human
transmission of the avian influenza virus has been confirmed in Indonesia.

In addition to its domestic initiatives to prevent the spread of avian influenza within Indonesia, the
Government is continuing to work in cooperation with foreign governments and international organizations,
including the United Nations World Health Organization (the WHO), its Food and Agricultural Organization
and its International Labor Organization, the World Bank, the Australian Governments Overseas Aid Program,
the Centers for Disease Control and Prevention in the United States, the Canadian International Development
Agency, the European Union, ASEAN, Japans International Cooperation Agency, the Japan Trust Fund, the
Netherlands and the Federal Republic of Germany (through the Reconstruction Credit Institute or Kreditanstalt
fr Wiederaufbau). The Government continuously reports new cases of avian influenza to the WHO, in line with
the WHOs International Health Regulations.

61
 The Government has taken several steps in influenza pandemic preparedness and response such as:
(i) providing and strengthening 100 influenza referral hospitals; (ii) strengthening epidemiology and virology
laboratories; (iii) implementing sentinel and routine surveillance; (iv) conducting vaccine development,
(v) carrying out ecology and transmission, clinical spectrum, disease management and molecular genetic as well
as antigenic research; (vi) conducting risk communication programs; (vii) implementing training exercises;
(viii) establishing command and coordination procedures; (ix) mobilizing and stockpiling logistics; and
(x) producing the generic antiviral drug, oseltamivir.

Middle East Respiratory Syndrome Corona Virus (MERS)

As of June 5, 2014, there have been no confirmed reports of MERS in Indonesia. Out of 129 suspected cases
occurring across 19 provinces in Indonesia, laboratory testing confirmed 126 negative results with three further
cases awaiting results. Worldwide, the WHO has indicated that MERS has been identified in as many as 19
countries with a total of 681 cases. While there is currently no vaccine available or any specific medication
available for the treatment of MERS, the Government has nonetheless taken several steps in readiness to respond
to any outbreak of MERS in Indonesia, including: (i) the increased monitoring of entry points to Indonesia
including the distribution of information pamphlets; (ii) increased surveillance of epidemiology; (iii) notification
of Provincial Health Agencies to prepare for MERS; (iv) notification to hospital towards readiness in
encountering MERS and implementation of measures to counteract against MERS; (v) increased laboratory
readiness including provision of diagnostic kits; (vi) information dissemination to the society especially potential
pilgrims of hajj and umra and Indonesian hajj officers; (vii) increased inter-program and inter-sectoral
coordination such as BNP2TKI, Ministry of Transportation, Ministry of Region, Ministry of Foreign Affairs, etc.
concerning readiness to encounter MERS; and (viii) increased international cooperation through WHO, etc.

Economy and Gross Domestic Product

Introduction
Indonesia has a balanced and diversified economy with manufacturing, trade, hotel and restaurant services
and agriculture as the principal sectors. In 2011, 2012, 2013 and the third quarter of 2014, the manufacturing
sector accounted for the largest portion of GDP (23.7% in 2013 and 23.4% in the third quarter of 2014 using
current prices followed by trade, hotel and restaurant services (14.3% in 2013 and 14.3% in the third quarter of
2014, using current market prices) and agriculture (14.4% in 2013 and 15.2% in the third quarter of 2014, using
current market prices).

The main challenges currently facing Indonesias economy include uncertainty in relation to the global
economic recovery and in relation to commodity prices, both of which are crucial factors in determining the
Republics export performance. Furthermore, the level of imports declined as a result of the Republics reduced
export performance and reduced expenditure on new infrastructure projects. Domestically, there are several risks
which could influence the rate of inflation, including inflationary pressures from increases in fuel and LPG
prices, in addition to increases resulting from the burden of serving external debt amongst limited market
liquidity.

As a result of recent changes in crude oil prices, the Government may change its budgetary assumptions
relating to crude oil under its 2015 Budget.

62
 The following table sets forth certain of the Republics principal economic indicators as of and for the
specified dates and periods. Growth in real GDP and inflation (measured by changes in the CPI) are indicated on
a year-on-year basis.

Selected Key Economic Indicators

Nine months
ended Year Ended
Year Ended December 31, September 30, December 31,
2009 2010 2011 2012 2013 2014R 2014 2015B
National account and prices:
Real GDP growth . . . . . . . . . . 4.6% 6.2% 6.5% 6.2% 5.8% 5.5% 5.0% 5.8%
Per capita GDP (in thousands
of Rupiah) . . . . . . . . . . . . . . 23,880 27,028 30,795 33,748 36,508 N/A N/A N/A
Per capita GDP
(in U.S. dollars)(1) . . . . . . . . 2,347 3,004 3,541 3,606 3,803 N/A N/A N/A
Average exchange rate
(Rupiah per U.S.
dollar)(2) . . . . . . . . . . . . . . . . 10,380 9,080 8,768 9,358 10,445 11,600 11,770 11,900
Inflation rate (change in
CPI) . . . . . . . . . . . . . . . . . . . 2.8% 7.0% 3.8% 4.3% 8.4% 5.3% 4.5% 4.4%
External sector:
Current account (% of
GDP) . . . . . . . . . . . . . . . . . . 2.0% 0.7% 0.2% (2.8)% (3.3)% N/A (3.1)% N/A
Fiscal account:
Budget surplus/(deficit) (% of
GDP) . . . . . . . . . . . . . . . . . . (1.6)% (0.7)% (1.1)% (1.9)% (2.2)% (2.4)% (1.5)% 2.2%
External debt of the central
government (in trillions of
Rupiah) . . . . . . . . . . . . . . . . 817 775 777 849 1,108 N/A 1,132 N/A
Debt service ratio (% of
government revenue) . . . . . . 24.3% 21.0% 18.8% 19.2% 19.1% N/A 24.4% N/A
Sources: BPS, Bank Indonesia and Ministry of Finance
B Projected figures based on 2015 Budget.
R Revised 2014 Budget.
N/A Not available.

(1) Per capita GDP in U.S. dollars has been converted from Rupiah into U.S. dollars and the U.S. dollar amounts of external debt of the
central government have been converted into Rupiah at the following exchange rates per U.S. dollar: Rp10,380 per U.S. dollar for 2009,
Rp9,080 per U.S. dollar for 2010, Rp8,768 per U.S. dollar for 2011, Rp9,358 per U.S. dollar for 2012, Rp10,445 per U.S. dollar for 2013
and Rp11,770 per U.S. dollar for the nine months ended September 30, 2014. These exchange rates are calculated at the BI middle
exchange rate.
(2) Official average exchange rate for the relevant period published by Bank Indonesia in its quarterly or annual report.

Gross Domestic Product

In 2009, the Republics real GDP growth was 4.6%. Indonesia has made substantial progress towards
achieving macroeconomic stability and reducing the economys sensitivity to external shocks, following which
real GDP grew by 6.2% in 2010, 6.5% in 2011 and 6.2% in 2012. Indonesias real GDP grew by 5.8% in 2013,
primarily due to increases of 5.3% and 4.9% in exports and public consumption, respectively. Transportation and
communication, financial services, construction and trade and hotel and restaurant services sectors grew at rates
higher than the overall real GDP growth rate in 2013, at 10.6%, 9.8%, 6.6%, and 18.1% (at constant market
prices), respectively. In the nine months ended September 30, 2014, the transportation and communication,
financial services, construction, trade and hotel and restaurant services sectors grew at rates higher than the
overall real GDP growth rate for the nine months ended September 30, 2014, at 7.3%, 7.6%, 9.8% and 14.4% (at
current market prices), respectively. Growth in real GDP slowed to 5.0% during the nine months ended
September 30, 2014 and was recorded at 5.1% for 2014.

63
 The following table shows the distribution of GDP in the Indonesian economy by expenditure for the
periods indicated.

Distribution of Gross Domestic Product by Expenditure

(at current market prices)

Nine months
ended
Year ended December 31, September 30,
2009 2010 2011 % 2012P % 2013P % 2014P %
GDP . . . . . . . . . . . . . . . . . . . . . . 5,606,203 6,446,852 7,419,187 100.0 8,229,439 100.0 9,083,972 100.0 7,507,938 100.0
Add: Imports of goods and
services . . . . . . . . . . . . . . 1,197,093 1,476,620 1,851,070 25.0 2,127,726 25.9 2,338,119 25.7 1,859,388 24.8
Total supply of goods
and services . . . . . . 6,803,296 7,923,472 9,270,257 124.9 10,357,165 125.8 11,422,091 125.7 9,367,327 124.8
Less: Exports of goods and
services . . . . . . . . . . . . . . 1,354,409 1,584,674 1,955,821 26.4 1,999,254 24.3 2,156,809 23.7 1,722,756 22.9
Total domestic
expenditure . . . . . . . 5,448,887 6,338,798 7,314,436 98.6 8,357,911 101.6 9,265,282 102.0 7,644,570 101.8
Allocation of total domestic
expenditure:
Private consumption . . . . . . 3,290,996 3,643,425 4,053,364 54.6 4,496,373 54.6 5,071,094 55.8 4,182,556 55.7
Public consumption . . . . . . 537,589 587,283 669,000 9.0 733,269 8.9 827,243 9.1 603,676 8.0
Total consumption . . . 3,828,585 4,230,708 4,722,365 63.6 5,229,642 63.5 5,898,337 64.9 4,786,232 63.7
Gross domestic fixed
capital formation . . . . . . 1,744,357 2,064,994 2,370,273 32.0 2,688,884 32.7 2,876,253 31.7 2,330,793 31.0
Change in stocks
(residual) . . . . . . . . . . . . . (124,055) 43,096 221,799 3.0 439,385 5.3 490,692 5.4 527,545 7.0
Total domestic
expenditure . . . . . . . 5,448,887 6,338,798 7,314,436 98.6 8,357,911 101.6 9,265,282 102.0 7,644,570 101.8

Source: BPS
P Preliminary.

In 2009, real GDP grew by 4.6% due to increased public consumption, private consumption and investment
of 15.7%, 4.9%, and 3.3%, respectively. All sectors of the Indonesian economy grew in 2009. The transportation
and communication, utilities (electricity, gas and water), construction, other services and financial services sector
grew at rates higher than the overall GDP growth rate in 2009, at 15.8%, 14.3%, 7.1%, 6.4% and 5.2%,
respectively. The agriculture, mining and quarrying and manufacturing sectors grew at rates lower than the
overall real GDP growth rate.

Indonesias real GDP grew by 6.2% in 2010, primarily due to increased exports, investment, and private
consumption of 15.3%, 8.5%, and 4.7%, respectively. All sectors of the Indonesian economy grew in 2010. The
transportation and communication, trade, hotel and restaurant services, and construction sectors grew at rates
higher than the overall real GDP growth rate in 2010, at 13.4%, 8.7%, and 7.0%, respectively. The other services,
financial services, utilities (electricity, gas and water), agriculture, mining and quarrying and manufacturing
sectors grew at rates lower than the overall real GDP growth rate.

Indonesias real GDP grew by 6.5% in 2011, primarily due to increased exports, investment, private
consumption and public consumption of 13.6%, 8.3%, 4.7% and 3.2%, respectively. All sectors of the Indonesian
economy grew in 2011. The transportation and communication, trade, hotel and restaurant services, financial
services, other services, and construction sectors grew at rates higher than the overall real GDP growth rate, at
10.7%, 9.2%, 6.8%, 6.8%, and 6.1%, respectively. The manufacturing, utilities (electricity, gas and water),
agriculture, mining and quarrying, and manufacturing sectors grew at rates lower than the overall real GDP
growth rate.

Indonesias real GDP grew by 6.2% in 2012, primarily due to increased domestic demand (evidenced by
investment, private consumption and public consumption growth of 9.7%, 5.3%, and 1.3%, respectively), while
real exports grew at a slower rate than imports. All sectors of the Indonesian economy grew in 2012. The
transportation and communication, trade, hotel and restaurant services, construction, financial services and
utilities (electricity, gas and water) sectors grew at rates higher than the overall real GDP growth rate in 2012, at
10.0%, 8.1%, 7.4%, 7.1% and 6.2%, respectively. The manufacturing, other services, agriculture and mining and
quarrying sectors grew at rates lower than the overall real GDP growth rate.

64
 Indonesias real GDP grew by 5.8% in 2013, primarily due to increases in exports and public consumption
of 5.3% and 4.9%, respectively. The transportation and communication, financial services, construction, and
trade, hotel and restaurant services sectors grew at higher rates than the overall real GDP growth rate in 2012, at
10.2%, 7.6%. 6.6% and 5.9%, respectively.

Indonesias real GDP grew by 5.0% during the nine months ended September 30, 2014, primarily due to
increased change in inventory, private consumption and gross domestic fixed capital formation, of 21.4%, 5.5%,
and 5.1% respectively. The transportation and communication, construction, utilities (electricity, gas and water),
financial services, and other services sectors grew at rates higher than the overall real GDP growth rate during
the nine months ended September 30, 2014 at approximately 9.7%, 6.5%, 6.4%, 6.1%, and 6.0% respectively.
The mining and quarrying sectors and agriculture sectors grew at rates lower than the overall real GDP growth
rate during the nine months ended September 30, 2014. Real GDP grew by 5.1% as of December 31, 2014
primarily due to weakened export performance, a slowdown in global demand and decreased prices of
commodities.

Inflation
Indonesia measures annual inflation by year-on-year changes in the CPI. Inflation in Indonesia reached a
peak of 82.4% (on an annualized basis) in September 1998. In 2009, the CPI increased by 2.8% compared to
2008 due primarily to higher prices in processed food, beverages and cigarettes. In 2010, the CPI increased by
7.0% compared to 2009 primarily due to higher prices in major food groups. In 2011, the CPI increased by 3.8%
compared to 2010 primarily due to higher prices in major food groups, processed foods, utilities and clothing.
From 2011 to 2012, the CPI increased by 4.3%, primarily due to higher prices in processed food, beverages,
cigarettes, commodities and foodstuffs. This was curbed monthly by a stable level of core inflation, low inflation
of volatile foods as well as low inflation of administered prices. CPI increased significantly in 2013 and was
recorded at 8.4% mainly due to subsidized fuel adjustment. In 2014, CPI was recorded at 8.4%, primarily due to
significant increases in administered prices inflation and volatile foods inflation.

Inflation targets are set periodically by the Government. Under Law No. 23 of 1999 on Central Bank, as
amended by Law No. 6 of 2009 (the Central Bank Law) it is the main task of the central bank, Bank Indonesia,
to achieve and maintain stability in the Rupiahs value. The Government targeted an inflation rate of 4.5%
(1.0%) in 2014 and is targeting an inflation rate of 4.0% () in 2015. In order to maintain the purchasing power
of low-income households, the Government administers or influences prices for key goods and services,
including fuel, rice, crude palm oil, soybeans, fertilizers, electricity, telephone service and water, through the use
of subsidies, VAT exemptions, export taxes, limitations on imports and other regulatory measures.

The following table shows the CPI as of the end of the periods indicated and the annual percentage change
over the previous period.

Changes in Consumer Price Index

Year ended December 31,
2009 2010 2011 2012 2013 2014

CPI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 117.0(1) 125.2(1) 129.9(1) 135.5(1) 146.8(1) 119.0

Annual percentage year-on-year . . . . . . . . . . . . . . . . . 2.8% 7.0% 3.8% 4.3% 8.4% 8.4%
Source: BPS
(1) Calculated on the basis of 2007 CPI = 100.

65
 The following table shows the inflation rate (change in CPI) for groups of commodities for the periods
indicated, in each case on a year-on-year basis.

Inflation by Commodity

Year ended December 31,

2009 2010 2011 2012 2013 2014

Overall inflation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.8% 7.0% 3.8% 4.3% 8.4% 8.4%

Food . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.9% 15.6% 3.6% 5.7% 11.4% 10.6%
Processed food, beverages and cigarettes . . . . . . . . 7.8% 7.0% 4.5% 6.1% 7.4% 8.1%
Housing and utilities . . . . . . . . . . . . . . . . . . . . . . . . 1.8% 4.1% 3.5% 3.4% 6.2% 7.4%
Clothing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.0% 6.5% 7.6% 4.7% 0.5% 3.1%
Health . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.9% 2.2% 4.3% 2.9% 3.7% 5.7%
Education, recreation and sports . . . . . . . . . . . . . . . 3.9% 3.3% 5.2% 4.2% 3.9% 4.4%
Transportation and communication . . . . . . . . . . . . (3.7)% 2.7% 1.9% 2.2% 15.4% 12.1%
Source: BPS

In 2005, the Government formed an Inflation Management and Monitoring Team (Tim Pemantauan dan
Pengendalian Inflasi or TPI) that is responsible for analyzing and identifying the sources of inflation, as well as
for providing policy recommendations to maintain inflation at low and stable levels in the medium-to-long term.
The TPI at the national level consists of a number of governmental authorities, including Bank Indonesia, the
Ministry of Finance, the Ministry of Transportation, the Ministry of Trade, the Ministry of Agriculture, the
Ministry of Energy and Mineral Resources, and the Coordinating Ministry of Economic Affairs. Since 2010, the
TPI has also been formed in various regions to strengthen policy coordination, particularly in monitoring and
controlling regional inflation. As of November 30, 2014, there were 33 provinces and 292 cities and districts that
had established a TPI.

In 2009, annual inflation was 2.8%, which was very low by historic standards in Indonesia and significantly
less than the 2008 inflation rate of 11.1%. The largest contributors to inflation in 2009 were substantial increases
(on average, 7.8% higher compared to prices in 2008) in processed food, beverages, cigarettes and tobacco prices
(amongst these, increases in the prices of processed food and soft drinks were the principal contributors) and
clothing prices (on average, 6.0% higher compared to prices in 2008). In addition, prices for food, education,
recreation and sports, and health services each rose by 3.9%. On the other hand, prices for transportation and
communications declined by 3.7%, in part due to fuel prices being reduced in January 2009.

In 2010, annual inflation was 7.0%, which was significantly higher than the 2009 inflation rate. This rate
reflects the substantially higher global prices of energy, food, and other commodities and increased domestic
demand in 2010. Substantial increases in food prices contributed the greatest increase in the inflation rate and
food prices in 2010 were 15.6% higher on average compared to prices in 2009. The increases were principally in
the prices of spices, rice, red pepper, chili, cooking oil, fish and potato. Compared to 2009 levels, 2010 prices for
processed food, beverages, cigarettes and tobacco rose by 7.0%, prices for clothing rose by 6.5%, prices for
housing and utilities rose by 4.1%, prices for education, recreation and sports rose by 3.3%, and prices for health
services rose by 2.2%.

In 2011, annual inflation was 3.8%. Substantial increases in clothing prices contributed to the increase in the
inflation rate, with clothing prices 7.6% higher on average compared to prices in 2010. Prices for education in
2011 rose by 5.2% compared to prices in 2010, prices for foodstuffs rose by 3.6%, prices for processed foods,
beverages, cigarettes and tobacco rose by 4.5%, prices for health services rose by 4.3%, prices for housing and
utilities rose by 3.5%, and prices for transportation and communication rose by 1.9%.

In 2012, annual inflation was 4.3% due primarily to higher prices in processed foods, beverages and
cigarettes, food and clothing, which were 6.1%, 5.7%, and 4.7% higher, respectively.

In 2013, annual inflation was 8.4%, which was significantly higher than the 4.3% annual inflation in 2012.
Substantial increases in transportation and communication prices contributed greatly to the increased rate of
inflation as both sectors witnessed price increases of 15.4% or higher on average compared to prices in 2012. In
2013, prices for food rose by 11.4%, prices for processed food, beverages and cigarettes rose by 7.4%, and prices
for housing and utilities rose by 6.2% when compared against prices for 2012.

66
 In 2014, inflation was recorded at 8.4%. Inflation in the third quarter of 2014 was recorded at 4.5%
(year-on-year), lower than 6.7% (year-on-year) in the previous quarter as a result of lower inflationary pressures
on volatile foods and controlled core inflation. The higher inflation rate as at December 31, 2014 was primarily
due to subsidized fuel price hikes, higher airfares and more expensive electricity rates, in addition to chili prices
rising beyond historical norms as a result of the prolonged dry season. Furthermore, inflation occurred in the
entire expenditure group. In December 2014, prices for transportation, communication and financial services rose
by 5.6% in (month-to-month), while prices in foodstuffs rose by 3.2% (month-to-month), and prices in processed
foods, beverages and cigarettes rose by 2.0% (month-to-month).

67
Privatization of State-Owned-Enterprises
The sale by the Government of state-owned-enterprise shares to private investors has been an important
means for the Government to promote private investment and to improve the efficiency, transparency, public
accountability and corporate governance of the state-owned-enterprises. The following table sets forth significant
state-owned-enterprises that have been fully or partially privatized or further privatized from 1998 to December
31, 2014, the Governments interest in the state-owned-enterprise after the sale and the proceeds to the
Government and to the state-owned-enterprises, respectively, from the sales of the Governments shares:

State-Owned-Enterprise Privatizations
Proceeds
to
Government Proceeds to state-
Year of equity interest the owned-
State-Owned-Enterprise offering after offering Government enterprise
(percentages) (in billions of Rupiah (Rp)
and millions of U.S.
dollars (U.S.$))
PT Semen Gresik (Persero) Tbk . . . . . . . . . . . . . . . . . . . . . . . . 1998 51.0 Rp1,317
PT Jakarta International Container Terminal(1) . . . . . . . . . . . . . 1999 49.0 U.S.$190.0
PT Terminal Petikemas Surabaya(1) . . . . . . . . . . . . . . . . . . . . . 1999 51.0 U.S.$173.7
PT Telekomunikasi Indonesia (Persero) Tbk . . . . . . . . . . . . . . 1999 66.2 Rp3,188
2001 54.3 Rp3,100
2002 51.2 Rp1,100
PT Kimia Farma (Persero) Tbk . . . . . . . . . . . . . . . . . . . . . . . . . 2001 90.8 Rp110
PT Indofarma (Persero) Tbk . . . . . . . . . . . . . . . . . . . . . . . . . . . 2001 80.2 Rp150
PT Socfin Indonesia(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2001 10.0 U.S.$45
PT Indonesian Satellite Corporation Tbk . . . . . . . . . . . . . . . . . 2002 14.4 U.S.$608
Rp967
PT Tambang Batubara Bukit Asam (Persero) Tbk . . . . . . . . . . 2002 84.0 Rp159 Rp16
2004 65.0 Rp180
PT Wisma Nusantara Indonesia(2) . . . . . . . . . . . . . . . . . . . . . . . 2002 Rp255
PT Bank Mandiri (Persero) Tbk . . . . . . . . . . . . . . . . . . . . . . . . 2003 80.0 Rp2,547
2004 70.0 Rp2,844
2011 60.0 Rp389.5(4) Rp11,684
PT Indocement Tunggal Prakarsa Tbk(2) . . . . . . . . . . . . . . . . . . 2003 Rp1,157
PT Bank Rakyat Indonesia (Persero) Tbk . . . . . . . . . . . . . . . . . 2003 56.8 Rp2,472 Rp1,537
PT Perusahaan Gas Negara (Persero) Tbk . . . . . . . . . . . . . . . . 2003 65.5 Rp935 Rp1,163
2004 61.0 Rp306 Rp16
2006 54.6 Rp2,088
PT Pembangunan Perumahan (Persero) Tbk . . . . . . . . . . . . . . . 2004 51.0 Rp60
2010 51.0 Rp566
PT Adhi Karya (Persero) Tbk . . . . . . . . . . . . . . . . . . . . . . . . . . 2004 51.0 Rp65 Rp63
PT Bank Negara Indonesia (Persero) Tbk . . . . . . . . . . . . . . . . . 2007 76.4 Rp3,086 Rp3,854
2010(3) 73.3 Rp1,355
2010(4) 60.0 Rp741.6 Rp10,216
PT Wijaya Karya (Persero) Tbk . . . . . . . . . . . . . . . . . . . . . . . . 2007 68.3 Rp766
PT Jasa Marga (Persero) Tbk . . . . . . . . . . . . . . . . . . . . . . . . . . 2007 70.0 Rp3,362
PT Bank Tabungan Negara (Persero) Tbk . . . . . . . . . . . . . . . . 2009 72.9 Rp1,819
2012(4) 60.0 Rp135.9 Rp1,870
PT Krakatau Steel (Persero) Tbk . . . . . . . . . . . . . . . . . . . . . . . . 2010 80.0 Rp2,593
PT Kertas Blabak(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2010 Rp0.5(3)
PT Intirub(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2010 Rp7.0(3)
PT Garuda Indonesia (Persero) Tbk . . . . . . . . . . . . . . . . . . . . . 2011 69.1 Rp3,187
2014(4) 60.5 Rp11.2(4) Rp1,448.9
PT Kertas Basuki Rachmat(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . 2011 Rp2.6(3)
PT Atmindo(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2011 Rp9.0(3)
PT Jakarta International Hotel Development, Tbk(2) . . . . . . . . . 2011 Rp18.5(3)
PT Waskita Karya (Persero) Tbk . . . . . . . . . . . . . . . . . . . . . . . 2012 68.0 Rp1,171
PT Semen Baturaja (Persero) Tbk . . . . . . . . . . . . . . . . . . . . . . . 2013 76.2 Rp1,309
PT Sarana Karya(5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2013 Rp48.2
PT Kertas Padalarang(6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2013 Rp12.1
Source: Ministry of State-Owned-Enterprises
(1) Subsidiary of state-owned-enterprise.

68
(2) Minority Ownership by Government.
(3) Sale of unsold shares from 2007.
(4) Rights issue through the issuance of new shares.
(5) Pursuant to Government Regulation No.91 of 2013, sales of shares held by the Republic state shares in PT Sarana Karya have been made
using strategic sales method to PT Wijaya Karya (Persero), Tbk. with total gross proceeds of Rp50 billion on December 30, 2013.
(6) Pursuant to Government Regulation No.35 and 36 of 2013, sales of shares held by the Republic in PT Kertas Padalarang have been made
using strategic sales method to Perum Peruri with total gross proceeds of Rp13 billion on December 18, 2013.

From 1998 to December 31, 2013, 31 companies, including state-owned-enterprises, state-owned-enterprise

subsidiaries and companies with minority government ownership have been privatized or further privatized in
part or in full. The most recent privatization was the initial public offering of PT Semen Baturaja (Persero), Tbk.
In addition, the Government, through the Indonesian Bank Restructuring Agency (IBRA) and PT Perusahaan
Pengelola Aset (Persero) (PPA), has sold its stake in certain non-state-owned-enterprise entities and assets. See
Financial System PT Perusahaan Pengelola Aset (Persero).

In 2012, the Government, privatization program included the proposed privatization of seven state-owned-
enterprises: PT Semen Baturaja (Persero), PT Bank Tabungan Negara (Persero), Tbk, PT Industri Gelas
(Persero), PT Industri Sandang Nusantara (Persero), PT Kimia Farma (Persero), Tbk, PT Industri
Telekomunikasi (Persero) and Perum Pegadaian. However, the DPR only approved the privatization program for
PT Bank Tabungan Negara (Persero) Tbk. A rights issue for PT Bank Tabungan Negara (Persero) Tbk was
subsequently conducted. In addition, the Government also privatized PT Waskita Karya (Persero) (which is part
of the Governments 2008 privatization program) through an initial public offering.

In 2013, the Governments privatization program was planned to include: (i) a rights issue of PT Aneka
Tambang (Persero), Tbk; (ii) the five state-owned-enterprise privatization proposals carried over from 2012; and
(iii) three state-owned-enterprise privatization proposals for PT Sarana Karya (Persero), PT Primissima (Persero)
and PT Kertas Padalarang carried over from 2010. PT Semen Baturaja (Persero)s initial public offering was
completed and the shares were successfully listed on the Indonesia Stock Exchange on June 23, 2013.

As of March 31, 2014, the Governments privatization program was planned to include PT Primissima,
PT Prasadha Pamunah Limbah Industri, PT Perkebunan Nusantara V, and PT Perkebunan Nusantara VII.

Regarding Government Regulation No. 72 of 2014 on the State Additional Investment on PT Perkebunan
Nusantara I-XIV dated September 17, 2014, there are several actions to enforce the privatization program such as
the corporate status adjustment of PT Perkebunan Nusantara I, II, IV, V, VI, VII, VIII, IX, X, XI, XII, XIII, and
XIV (Persero) into a limited liability company and to comply with Company Law. Other adjustments made by
the Government include the establishment of PT Perkebunan Nusantara III (Persero) as the Holding Company of
PT Perkebunan Nusantara I,II, IV, V, VI, X,XII, XII and XIV.

In 2014, the Coordinating Minister For the Economy by the Referral Privatization Committee letter
No. S-23/M.EKON/01/2014 dated January 30, 2014 and the Ministry of Finance Recommendation Letter
No. S-71/MK.06/2014 dated February 4, 2014 approved the recommendation to conduct the Initial Public
Offering (IPO) of two state-owned-enterprises, namely PT Perkebunan Nusantara V (Persero) and PT
Perkebunan Nusantara VII (Persero) by offering 40% new shares (unsubscribed). The execution of these IPOs
has been postponed pending Presidential approval.

In 2014, PT Garuda Indonesia conducted a rights issue, as a follow up to the Garuda Indonesia IPO in 2011.
PT Garuda Indonesia issued 3,227,930,633 class B series shares amounting to 12.48% from the enlarged capital.
The rights issue achieved Rp460.00/share and the placement achieved Rp465.00/share, resulting in the non state
owned rights issue shares obtaining Rp5.00/share. The net proceeds of PT Garuda Indonesia shares amounted to
Rp1,448.9 billion, and the non state owned rights issue proceeds resulted in Rp11.16 billion (these numbers are
subject to the ongoing verification of costs associated with privatization).

In line with the Jokowi administrations agenda, the Ministry of State-Owned-Enterprises will contribute
towards developing, among others: (i) the food supply; (ii) the energy supply; (iii) the monetary supply; and
(iv) the infrastructure and the maritime sector.

69
Principal Sectors of the Economy
Indonesias major economic sectors include manufacturing (including oil and gas), agriculture, trade, hotel
and restaurant services, financial services, mining and quarrying, construction, transport, communications,
services and electricity, gas and water supply. The manufacturing sector accounts for the largest portion of GDP.
The following tables show GDP by sector at current market prices and constant market prices, respectively, for
the periods indicated.

Gross Domestic Product by Major Sectors

(at current market prices)

Nine months ended

Year ended December 31, September 30,
2009 2010 2011 2012 % 2013P % 2014P %
(in billions of Rupiah and percentage of GDP)
Manufacturing:
Oil and gas . . . . . . . . . . . . . . . . . . . . . . . . 209,841 214,433 253,079 254,557 3.1 266,794 2.9 217,735 2.9
Manufacturing (excluding oil and gas) . . . 1,267,700 1,384,640 1,553,062 1,717,967 20.9 1,885,799 20.8 1,550,364 20.6
Total manufacturing . . . . . . . . . . . . . 1,477,542 1,599,073 1,806,141 1,972,524 24.0 2,152,59 23.7 1,768,098 23.5
Agriculture, livestock, forestry and fisheries:
Farm food crops . . . . . . . . . . . . . . . . . . . . 419,195 482,377 529,968 574,916 7.0 621,833 6.8 549,538 7.3
Non-food crops . . . . . . . . . . . . . . . . . . . . . 111,379 136,049 153,709 162,543 2.0 175,248 1.9 153,004 2.0
Livestock and products . . . . . . . . . . . . . . . 104,884 119,372 129,298 145,720 1.8 165,163 1.8 134,595 1.8
Forestry . . . . . . . . . . . . . . . . . . . . . . . . . . . 45,120 48,290 51,781 54,907 0.7 56,994 0.6 44,163 0.6
Fisheries . . . . . . . . . . . . . . . . . . . . . . . . . . 176,620 199,383 226,691 255,368 3.1 291,799 3.2 246,877 3.3
Total agriculture, livestock, forestry
and fisheries . . . . . . . . . . . . . . . . . 857,197 985,471 1,091,447 1,193,453 14.5 1,311,037 14.4 1,128,177 15.0
Trade, hotel and restaurant services . . . . . . . . . 744,514 882,487 1,023,725 1,148,691 14.0 1,301,506 14.3 1,083,441 14.4
Financial, real estate and business services . . . 405,162 466,564 535,153 598,523 7.3 683,010 7.5 570,879 7.6
Mining and quarrying:
Oil and gas . . . . . . . . . . . . . . . . . . . . . . . . 254,948 290,467 370,223 386,560 4.7 401,939 4.4 326,407 4.3
Mining and quarrying (excluding oil and
gas) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 337,113 429,243 506,761 584,264 7.1 619,634 6.8 486,486 6.5
Total mining and quarrying . . . . . . . 592,061 719,710 876,984 970,824 11.8 1,021,573 11.2 812,893 10.8
Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . 555,193 660,891 753,555 844,091 10.3 906,467 10.0 734,053 9.8
Transport and communications . . . . . . . . . . . . . 353,740 423,172 491,287 549,105 6.7 636,888 7.0 546,734 7.3
Services:
General government . . . . . . . . . . . . . . . . . 318,581 359,841 433,371 486,315 5.9 541,191 6.0 412,130 5.5
Private sector services . . . . . . . . . . . . . . . . 255,536 300,525 351,643 403,679 4.9 459,631 5.1 389,527 5.2
Total services . . . . . . . . . . . . . . . . . . 574,117 660,366 785,014 889,994 10.8 1,000,823 11.0 801,658 10.7
Electricity, gas and water supply . . . . . . . . . . . 46,680 49,119 55,882 62,235 0.8 70,075 0.8 62,005 0.8
Total GDP . . . . . . . . . . . . . . . . . . . . . 5,606,203 6,446,852 7,419,187 8,229,439 100.0 9,083,972 100.0 7,507,938 100

Source: BPS
P Preliminary.

70
 Gross Domestic Product by Major Sectors
(at constant market prices)

Nine months ended

Year ended December 31, September 30,
2009 2010 2011 2012P % 2013P % 2014P %
(in billions of Rupiah and percentage of GDP)
Manufacturing:
Oil and gas . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46,935 47,199 46,758 45,451 1.7 44,627 1.6 32,983 1.5
Manufacturing (excluding oil and gas) . . . . . . 523,168 549,936 587,024 624,740 23.9 662,830 23.9 517,241 23.8
Total manufacturing . . . . . . . . . . . . . . . . . 570,103 597,135 633,782 670,191 25.6 707,458 25.5 550,223 25.3
Agriculture, livestock, forestry and fisheries:
Farm food crops . . . . . . . . . . . . . . . . . . . . . . . . 149,058 151,501 154,154 158,910 6.1 161,970 5.8 136,170 6.3
Non-food crops . . . . . . . . . . . . . . . . . . . . . . . . 45,558 47,151 49,260 52,325 2.0 54,903 2.0 45,431 2.1
Livestock and products . . . . . . . . . . . . . . . . . . 36,649 38,214 40,040 41,919 1.6 43,914 1.6 33,968 1.6
Forestry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,844 17,250 17,396 17,4233 0.7 17,442 0.6 12,766 0.6
Fisheries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47,775 50,662 54,187 57,703 2.2 61,661 2.2 48,500 2.2
Total agriculture, livestock, forestry and
fisheries . . . . . . . . . . . . . . . . . . . . . . . . 295,884 304,777 315,037 328,280 12.5 339,890 12.3 276,835 12.7
Trade, hotel and restaurant services . . . . . . . . . . . . . 368,463 400,475 437,473 473,111 18.1 501,158 18.1 388,767 17.9
Financial, real estate and business services . . . . . . . 209,163 221,024 236,147 253,023 9.7 272,152 9.8 215,336 9.9
Mining and quarrying:
Oil and gas . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95,230 96,146 95,155 91,691 3.5 88,742 3.2 65,226 3.0
Mining and quarrying (excluding oil and
gas) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84,971 91,007 94,988 101,425 3.9 106,967 3.9 80,284 3.7
Total mining and quarrying . . . . . . . . . . . 180,201 187,153 190,143 193,116 7.4 195,709 7.1 145,510 6.7
Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 140,268 150,022 159,123 170,885 6.5 182,118 6.6 142,488 6.5
Transport and communications . . . . . . . . . . . . . . . . 192,199 217,980 241,303 265,384 10.1 292,422 10.6 237,153 10.9
Services:
General government . . . . . . . . . . . . . . . . . . . . . 88,683 92,803 97,806 99,591 3.8 101,032 3.6 75,957 3.5
Private sector services . . . . . . . . . . . . . . . . . . . 116,751 125,040 134,853 145,279 5.5 157,206 5.7 127,346 5.9
Total services . . . . . . . . . . . . . . . . . . . . . . 205,434 217,842 232,659 244,870 9.3 258,238 9.3 203,304 9.3
Electricity, gas and water supply . . . . . . . . . . . . . . . 17,137 18,050 18,900 20,081 0.8 21,201 0.8 16,628 0.8
Total GDP . . . . . . . . . . . . . . . . . . . . . . . . 2,178,850 2,314,459 2,464,566 2,618,938 100.0 2,770,345 100.0 2,176,243 100

Source: BPS
P Preliminary.

Manufacturing
Indonesias principal manufactured goods include paper, automobiles, yarn, motorcycles and pulp. Other
major manufactured goods include automobile tires, assembled televisions sets and fertilizer. Manufacturing has
been the largest contributor to Indonesias economic growth since the 1980s. For statistical purposes, the
Republic divides the manufacturing sector into the oil and gas manufacturing sub-sector, which measures the
level of petroleum refining and LNG production, and the non-oil and gas manufacturing sub-sector, which
measures all other manufacturing activities.

In 2009, manufacturing industries grew by 2.2% compared to a rate of 3.7% in 2008. Non-oil and gas
manufacturing industries increased by 2.6% during 2009, primarily due to growth in the food, beverage, and
tobacco sub-sector, which grew by 11.2%. Oil and gas manufacturing industries declined by 1.5% in 2009,
mainly driven by a decline in the LNG manufacturing sub-sector of 3.1%. The petroleum refinery sub-sector,
however, grew by 0.5% in 2009.

In 2010, manufacturing industries grew by 4.7%, compared to a rate of 2.2% in 2009. Non-oil and gas
manufacturing industries grew by 5.1% during 2010, mainly driven by the transport, equipment and machinery
sub-sector, which grew by 10.4%. Meanwhile, oil and gas manufacturing industries grew by 0.6% in 2010,
primarily driven by the petroleum refinery sub-sector which grew by 1.2%, while the performance of the LNG
production sub-sector in 2010 was relatively similar to its production in 2009.

In 2011, manufacturing industries grew by 6.1%, compared to a rate of 4.7% in 2010. Non-oil and gas
manufacturing industries grew by 6.7% during this period mainly driven by the metal and steel industry sub-
sector, which grew by 13.1%. Oil and gas manufacturing industries declined by 0.9% in this period, primarily
due to the LNG manufacturing sub-sector which declined by 2.1%, while the petroleum refinery sub-sector grew
by 0.5%.

71
 In 2012, Indonesias manufacturing industries grew by 5.7%, compared to a rate of 6.1% in the previous
year. Non-oil and gas manufacturing industries grew by 6.4% during 2012 mainly driven by the fertilizer,
chemical and rubber products industry sub-sector, which grew by 10.5%. Oil and gas manufacturing industries
declined by 2.8% in 2012 due to the LNG manufacturing and the petroleum refinery sub-sectors which
contracted by 3.5% and 1.9%, respectively.

In 2013, Indonesias manufacturing industries grew by 5.6%, compared to a rate of 5.7% in the previous
year. Non-oil and gas manufacturing industries grew by 6.1% during 2013 mainly driven by the equipment and
machinery sub-sector industry, which grew by 10.5%. Oil and gas manufacturing industries declined by 1.8% in
2013 due to a 4.3% contraction in the LNG manufacturing sub-sector.

During the nine months ended September 30, 2014, manufacturing industries grew by 4.9% year-on-year.
Non-oil and gas manufacturing industries grew by 5.3% year-on-year during the nine months ended
September 30, 2014. Oil and gas manufacturing industries declined by 1.1% year-on-year due to the LNG
manufacturing sub-sectors which contracted by 4.0% year-on-year respectively during the nine months ended
September 30, 2014.

Agriculture
In 2009, the agriculture sector grew by 4.0%, the lowest growth in any major sector of the Indonesian
economy. This growth was mainly driven by the food crops, fishery and livestock sub-sectors which grew by
5.0%, 4.2% and 3.5%, respectively. In addition, estate cash crops and forestry production grew by 1.7% and
1.8%, respectively.

In 2010, the agriculture sector grew by 3.0%. This growth was mainly driven by the fishery, livestock, and
estate crops sub-sectors, which grew by 6.0%, 4.3%, and 3.5%, respectively.

In 2011, the agriculture sector grew by 3.4%, compared to a rate of 3.0% in 2010. This growth was mainly
driven by the fishery, livestock and estate crops sub-sectors which grew by 7.0%, 4.8%, and 4.5%, respectively.

In 2012, Indonesias agriculture sector recorded growth of 4.2%, higher than its growth of 3.4% in the
previous year. This growth was mainly driven by the fishery, estate crops, and livestock sub-sectors which grew
by 6.5%, 6.2%, and 4.7%, respectively.

In 2013, Indonesias agriculture sector recorded growth of 3.5%, slower than its growth of 4.2% in the
previous year. This growth was mainly driven by the fishery, estate crops, and livestock sub-sectors, which grew
by 6.9%, 4.9%, and 4.8%, respectively.

During the nine months ended September 30, 2014, the agriculture sector grew by 3.5% year-on-year. This
growth was mainly driven by the fishery, estate crops, and livestock sub-sectors, which grew by 6.5%, 6.0% and
5.0% year-on-year, respectively. The forestry subsector declined by 0.4% year-on-year for the nine months ended
September 30, 2014.

72
 The following table sets forth production statistics for Indonesias most important agricultural products in
the periods indicated.

Production of Principal Agricultural Products by Subsectors

Nine months
ended
September 30,
2009 2010 2011 2012 2013 2014
(in thousands of tons)
Food Crops
Rice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64,399 66,469 65,757 69,056 71,291 70,607
Cassava . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22,039 23,918 24,044 24,177 23,824 26,422
Corn . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,630 18,328 17,643 19,387 18,506 19,127
Sweet Potato . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,058 2,051 2,196 2,483 2,384 2,364
Soybeans (shelled) . . . . . . . . . . . . . . . . . . . . . . 975 907 851 843 780 921
Peanuts (shelled) . . . . . . . . . . . . . . . . . . . . . . . . 778 779 691 713 701 664
Mungbean . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 314 292 341 284 205 211
Estate cash cropsP
Dry Rubber . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,440 3,131 2,990 3,040 3,180
Coffee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 682 683 638 657 666
Cocoa . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 810 845 819 845 939
Tea . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 157 151 151 151 153
Sugarcane . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,517 2,290 2,268 2,438 2,581
Tobacco . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 176 135 214 227 231
Palm oil . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19,325 19,760 23,027 23,521 24,432
Livestock
Meat . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,205 2,366 2,554 2,666 2,828
Eggs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,307 1,366 1,456 1,628 1,719
Milk . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 827 910 975 966 982
Fish Products
Captured Fish . . . . . . . . . . . . . . . . . . . . . . . . . . 5,108 5,384 5,714 5,829 5,862P
Farmed Fish . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,709 6,278 7,929 9,676 5,199P

September 30,
2008 2009 2010 2011 2012 2013 2014
(in thousands of cubic meters)
Forestry
Logs . . . . . . . . . . . . . . . . . . . . . . . . . . 32,001 37,602 43,828 47,429 49,112 50,437 31,703
Sawn Timber . . . . . . . . . . . . . . . . . . . 531 710 898 934 1,027 1,228 801
Plywood . . . . . . . . . . . . . . . . . . . . . . . 3,353 3,005 3,324 3,302 3,188 3,262 2,091
Sources: BPS, Ministry of Agriculture, Ministry of Marine Affairs and Fishery, and Ministry of Forestry
p Preliminary.
No data available.

Food Crops. Rice is the most important food crop and the main source of carbohydrates in the Indonesian
diet. Rice production grew by 6.8% in 2009, by 3.2% in 2010, decreased slightly by 1.1% in 2011, increased by
5.0% in 2012 and 3.2% in 2013 and decreased by 0.9% in 2014 (preliminary figures). In early 2004, through the
Decree of the Minister of Industry and Trade No. 9/MPP/KEP/1/2004 (Decree No. 9/MPP/KEP/1/2004) on the
Rice Import Regulation, the Government imposed a ban on the importation of rice due to the surplus in the
supply of rice from domestic farmers, resulting in an effort to increase the income of rice farmers and to
encourage rice farmers not to sell productive rice fields to other users. The Government, nevertheless, continued
its ban on the importation of rice, except for imports of specialized categories of rice, such as rice for diabetics
and glutinous rice. Decree No. 9/MPP/KEP/1/2004 has been revoked and replaced by Minister of Trade
Regulation No. 19/M-DAG/PER/3/2014 on Terms and Conditions of Rice Imports and Exports effective as of
April 2014. This import restriction and other government policies to revitalize the agriculture sector contributed
to an increase in rice production in 2009.

Production of cassava increased by 1.3% in 2009, by 8.5% in 2010, by 0.5% in 2011, by 0.6% in 2012 but
decreased by 1.4% in 2013 and increased by 10.4% in 2014 (preliminary figures).

73
 Corn production increased by 8.0% in 2009 and by 4.0% in 2010 due to higher demand. Corn production
decreased by 3.7% in 2011 due to competition for land use from other crops but increased by 9.9% in 2012 due
to increased productivity and harvested area. Corn production decreased by 4.5% in 2013 and increased by 3.3%
in 2014 (preliminary figures).

Soybean production increased by 25.6% in 2009 principally because of increased demand and decreased by
7.0% in 2010 due to a decrease in harvested area. Soybean production decreased by 6.2% in 2011 due to a
decline in production in Java, by 0.9% in 2012 due to a decline in harvested area, mainly in Java, by 7.5% in
2013, and increased by 18.1% in 2014 (preliminary figures).

Peanut production increased by 1.0% in 2009 and by 0.1% in 2010. Peanut production decreased by 11.3%
in 2011 due to a decline in harvested area increased by 3.2% in 2012, decreased by 1.5% in 2013, and by 5.4% in
2014 (preliminary figures).

Production of sweet potatoes and mungbean has remained stable in the last few years.

Estate Cash Crops. Palm oil is the Republics most important cash crop, followed by rubber and sugar cane.
Large plantations produce the majority of palm oil, palm kernel and tea, while rubber, cocoa, tobacco, sugar cane
and coffee are produced primarily by small holders. Exports of palm oil and rubber and, to a lesser extent, coffee
and cocoa are significant sources of foreign exchange revenue. Palm oil production increased by 10.2% in 2009,
by 2.3% in 2010, by 16.5% in 2011, by 2.1% in 2012 and by 3.9% in 2013 (preliminary figures). Sugar cane
production decreased by 3.3% in 2009, by 9.0% in 2010, by 1.0% in 2011, increased by 7.5% in 2012 and by
5.9% in 2013 (preliminary figures). Cocoa production increased by 0.75% in 2009, by 4.3% in 2010, decreased
by 3.2% in 2011, increased by 3.2% in 2012 and by 11.1% in 2013. Rubber production decreased in 2009, but
has steadily increased since 2009 until 2013 due to higher prices and a higher demand for natural rubber
products.

Livestock. Livestock has maintained a relatively stable portion of total agriculture output since 2006.
Livestock output had a weighted average growth of approximately 5.2% per year from 2006 to 2012 (with per
year growth ranging from 0.0% to 10.9% during this period). Livestock production is steadily increasing and is
expected to increase along with income levels. Meat production was 2,205 thousand tons in 2009, 2,366 thousand
tons in 2010, 2,554 thousand tons in 2011, 2,666 thousand tons in 2012 and 2,828 thousand tons in 2013. Egg
production decreased to 1,307 thousand tons in 2009, increased to 1,366 thousand tons in 2010, increased to
1,456 thousand tons in 2011 and to 1,628 thousand tons in 2012 and to 1,719 thousand tons in 2013. Milk
production increased to 827 thousand tons in 2009, 910 thousand tons in 2010 and 975 thousand tons in 2011,
before it decreased to 966 thousand tons in 2012 and increased to 982 thousand tons in 2013.

Fish products. The Indonesian fisheries sector, which includes both capture and aquaculture, plays an
important role in the national economy. Productive fishing grounds within Indonesia are located in the Malacca
Strait, the South China Sea, the Makassar Strait, the Flores Sea, the Banda Sea, the Arafura Sea, the Tomini Bay,
the Maluku Sea and the Indian Ocean. In recent years, fishery products, particularly shrimp, have become
important export commodities. From 2009 to 2013, production of farmed fish or aquaculture increased
approximately 182.5% from 4,709 thousand tons in 2009 to 5,199 thousand tons in 2013. From 2009 to 2013,
total fish production increased by 24.2%, from approximately 4,915 thousand tons in 2009 to approximately
6,105 thousand tons in 2013. The countrys exports of fish and aquatic products consist of shrimp, skipjack, tuna
and other fish and aquatic species such as grouper, tilapia, abalone, seaweeds, sea cucumber, pearls and other
mollusks.

Forestry. Indonesias forestry sector experienced rapid expansion following the late 1960s, when
development of Indonesias forests first began on a large scale. Principal tropical hardwood resources are located
in Kalimantan, Sumatera, Papua and Sulawesi. Although the development of Indonesias tropical forests is
important to the countrys continued development, the preservation of those forests and the establishment of
long-term sustainable forest management and renewable forestry resources through the establishment of
reforestation programs are also government concerns. Currently, logging companies are only permitted to
conduct selective cutting, and they are required to pay reforestation and royalty fees to the Government based on
the quantity of logs harvested. Logging companies are also required to implement reforestation programs in their
forestry concessions. Production of logs increased from 49,112,000 m3 in 2012 to 50,437,000 m3 in 2013 and was
31,703,000 m3 for the third quarter of 2014. Meanwhile, sawn timber production increased from 1,027,000 m3 in
2012 to 1,228,000 m3 2013 and was 801,000 m3 for the third quarter of 2014. Furthermore, plywood products
increased from 3,188,000 m3 in 2012 to 3,262,000 m3 in 2013 and was 2,091,000 m3 for the second quarter of
2014.

74
Trade, Hotel and Restaurant Services
Following the global financial crisis, in 2009, the trade, hotel and restaurant services sector as a whole grew
at a lower rate of 1.3%, although the restaurant and hotel sub-sectors grew by 7.6% and 6.6%, respectively.
Wholesale and retail trade grew only 0.1% reflecting the impact of the global financial crisis.

In 2010, the trade, hotel and restaurant services sector grew by 8.7%, primarily due to growth in the
wholesale and retail trade sub-sector of 9.7%. The hotel services sub-sector grew at a rate of 6.8% while the
restaurant services sub-sector grew by 3.3% in 2010.

In 2011, the trade, hotel and restaurant services sector grew by 9.2%, higher than its growth of 8.7% in
2010. The growth was primarily due to the growth at a rate of 10.0% in the wholesale and retail trade sub-sector
in 2011 which was higher than the wholesale and retail trade sub-sectors 9.7% growth in 2010. In addition, the
hotel and the restaurant services sub-sectors grew by 10.1% and 4.2%, respectively, in 2011.

In 2012, the trade, hotel and restaurant services sector recorded growth of 8.2%, slower than its growth of
9.2% in 2011. The wholesale and retail trade and the hotel sub-sector grew at the same rate of 8.7%, respectively.
The hotel and restaurant services sub-sectors grew by 9.4% and 4.2% in 2012.

In 2013, the trade, hotel and restaurant services sector grew by 5.9%, primarily due to growth in the hotel
services sub-sector of 8.7%. The wholesale and retail trade sub-sector grew at a rate of 5.9% while the restaurant
services sub-sector grew by 5.2% in 2013.

During the nine months ended September 30, 2014, the trade, hotel and restaurant services sector grew by
4.5%, compared to the same period in 2013. The wholesale and retail trade sub-sectors grew by 4.2% and 5.4%,
while the hotel and restaurant service sector grew by 8.7% respectively.

Financial Services
The financial services sector includes both banks and non-bank financial institutions such as insurance
companies, pension funds, finance companies, venture capital companies, securities companies, mutual funds,
credit guarantee companies and pawnshops. See Financial System Banks and Other Financial Institutions
for more information on the financial services sector.

In 2009, the financial services sector grew by 5.2%, decreasing from growth of 8.2% in 2008. The lower
growth rate was mainly due to slower growth in the non-bank financial services, enterprise services, and real
estate services sub-sectors as compared to 2008, which grew by 9.9%, 9.7%, and 5.2%, respectively. The bank
financial services sub-sector grew at a lower rate than the overall financial sector.

In 2010, the financial services sector grew by 5.7% compared to 5.2% in 2009, primarily due to growth in
the enterprise services and non-bank financial services sub-sectors, which grew by 7.4% and 6.5%, respectively.
The bank financial services and real estate sub-sectors grew at rates lower than the overall financial sector.

In 2011, the financial services sector grew by 6.8%, increasing from growth of 5.7% in 2010. The higher
growth rate was primarily due to higher growth rates in the auxiliary financial services, non-bank financial
services, enterprise financial services and bank sub-sectors which were 7.9%, 7.3%, 7.3%, and 6.9%,
respectively. The real estate services sub-sector grew at a lower rate than the overall financial sector in 2011.

In 2012, Indonesias financial services sector grew by 7.1%, higher than the 6.8% growth rate in 2011. The
higher growth rate was primarily due to higher growth rates in the bank financial services and non-bank financial
services sub-sectors which grew by 8.3% and 7.1% respectively. The other sub-sectors grew at a lower rate than
the overall financial sector in 2012.

In 2013, Indonesias financial services sector grew by 7.6%, higher than the 7.1% growth rate in 2012. The
higher growth rate was primarily due to higher growth rates in the bank financial services, non-bank financial
services, and enterprise services sub-sectors, which grew by 9.2%, 7.0%, and 6.8% respectively. The other sub-
sectors grew at a lower rate than the overall financial sector in 2012.

During the nine months ended September 30, 2014, the financial services sector grew by 6.1%, decreasing
from a growth rate of 7.83% during the nine months ended September 30, 2013. The higher growth rate during

75
the nine months ended September 30, 2014 was primarily due to higher growth rates in the enterprise financial
services, non-bank financial services sub-sectors, bank sub-sector and real estate services which grew by 8.9%,
7.4%, 5.3% and 5.1%, respectively. The auxiliary financial services sub-sector grew at a lower rate than the
overall financial sector during the nine months ended September 30, 2014.

Mining and Quarrying

Indonesia produces a number of natural resources including oil, gas, coal and other minerals, and their
exploitation has made an important contribution to the countrys economic growth. The oil and gas sub-sector
accounts for a steadily declining percentage of revenue of the mining and quarrying sector, and this percentage
declined from 42.3% in 2011 to 39.4% in 2012 to 39.3% in 2013 and to 39.2% during the third quarter of 2014.

Although oil and gas production has declined over the past several years, oil and gas are still Indonesias
largest exports, contributing approximately 17.2%, 18.1%, 18.9%, 18.8%, 18.3% and 17.5% of total exports in
2009, 2010, 2011, 2012, 2013 and the ten months ended October 31, 2014, respectively, and approximately
20.8%, 21.3%, 22.1%, 21.7%, 20.4% and 18.1% of government domestic revenue (inclusive of income tax
revenue from the oil and gas sub-sector) in 2009, 2010, 2011, 2012, 2013, and the Revised 2014 Budget,
respectively. Indonesia is no longer a net exporter of oil. In 2009, 2010, 2011, 2012, 2013 and the ten months
ended October 31, 2014, Indonesia received U.S.$20.6 billion, U.S.$28.7 billion, U.S.$38.1 billion U.S.$35.6
billion, U.S.$33.6 billion and U.S.$25.9 billion, respectively, from the export of oil and gas. See Foreign Trade
and Balance of Payments Exports and Imports. As products in the mining and quarrying sector are
internationally traded commodities with prices set by the world markets, the performance of this sector is
determined primarily by international market prices.

In 2009, the mining and quarrying sector grew by 4.5%, primarily due to growth in the non-oil and gas
mining sub-sector and the quarrying sub-sector, which grew by 10.9% and 7.0%, respectively. However, the oil
and gas sub-sector grew by 0.1% in 2009.

In 2010, the mining and quarrying sector grew by 3.9%, primarily due to growth in the non-oil and gas
mining sub-sector and the quarrying sub-sector, which grew by 7.3% and 6.5%, respectively. The oil and gas
sub-sector grew by 0.1% in 2010.

In 2011, the mining and quarrying sector grew by 1.6% as the quarrying and non-oil and gas sub-sectors
grew by 7.3% and 3.4%, partially affected by negative growth in the oil and gas mining sub-sector which was
minus 1.0%.

In 2012, Indonesias mining and quarrying sector recorded growth of 1.6%. The higher growth rate was
primarily due to higher growth in the quarrying and the non-oil and gas and mining sub-sectors which grew by
7.4% and 6.6%, respectively. However, the oil and gas mining sub-sector declined by 3.6% in 2012.

In 2013, Indonesias mining and quarrying sector recorded growth of 1.3%, a slower rate of growth
compared to the growth of 1.5% during 2012. The slower growth rate was primarily due to the oil and gas mining
sub-sector declining by 3.2% in 2013, which was partially offset by higher growth in the quarrying and the non-
oil and gas and mining sub-sectors, which grew by 5.9% and 5.3%, respectively.

During the nine months ended September 30, 2014, the mining and quarrying sector increased by 0.1%
compared to the same period in 2013. The higher growth rate was primarily due to growth in the quarrying
sub-sector which grew by 6.4%. During the nine months ended September 30, 2014, the oil and gas sub-sector
declined by 2.0% and the non-oil and gas mining sub-sector declined by 0.3%.

Oil and Natural Gas. In 2009, 2010, 2011, 2012, 2013 and nine months ended September 30, 2014, average
oil production was 949,000, 945,000, 1,082,000, 859,860, 825,000 and 786,000 barrels per day, respectively.

76
 Although oil and gas production has declined over the past several years, oil and gas are still Indonesias
largest exports, contributing approximately 16.9% of total exports for nine months ended September 30, 2014,
and approximately 18.1% of government domestic revenue (inclusive of income tax revenue from the oil and gas
sub-sector) in the Revised 2014 Budget. As products in the mining and quarrying sector are internationally traded
commodities with prices set by the world markets, the performance of this sector is determined primarily by
international market prices. See Foreign Trade and Balance of Payments Exports and Imports. The
following table sets forth crude oil production by source for the periods indicated.

Crude Oil Production by Source(1)

Nine months
ended
Year ended December 31, September 30,
2009 2010 2011 2012 2013 2014
(in millions of barrels)
Pertamina(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45.8 47.0 54.2 46.6 43.9 31.8
Production sharing contracts(3) . . . . . . . . . . . . . . . . . . . . . . 300.5 297.8 340.9 268.1 256.8 185.1
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 346.3 344.8 395.1 314.7 300.7 216.9

Source: Ministry of Energy and Mineral Resources

(1) Includes production of crude oil condensate.
(2) In 2003, Pertamina became a state-owned limited liability company.
(3) Most of the production under production sharing contracts is provided to Pertamina.

In 2011, Indonesia produced 395.1 million barrels of crude oil compared to 344.8 million barrels in 2010. In
2012, Indonesia produced 314.7 million barrels of crude oil, decreasing to 300.7 million barrels of crude oil in
2013 and 216.9 million barrels of crude oil for the nine months ended September 30, 2014, mainly reflecting the
maturity of oil fields in Indonesia.

The following table sets forth Indonesias crude oil exports by source for the periods indicated.

Crude Oil Exports(1)

Nine months
ended
Year ended December 31, September 30,
2009 2010 2011 2012 2013 2014
(in millions of barrels)
Production sharing contracts(2) . . . . . . . . . . . . . . . . . . . . . . 111 102 101 84.5 96 73
Government and government-designated(3) . . . . . . . . . . . . 22 43 29 20.5 21 9
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 133 145 130 105 117 216.9

Source: Ministry of Energy and Mineral Resources

(1) Includes exports of crude oil condensate.
(2) Most of the production under production sharing contracts is provided to Pertamina.
(3) Exports by Pertamina and entities designated by BP Migas were reported together.

Crude oil exports decreased in 2012 due to a decline in crude oil production as a result of operational
constraints, including extreme weather and unavailability of shipping. Crude oil exports increased in 2013 due to
the optimization of oil field production. During the first quarter of 2014, crude oil exports increased by 3.1%
(year-on-year).

77
 The following table sets forth the average price of Indonesian crude oil, measured by the ICP, for the
periods indicated.

Average Price of Indonesian Crude Oil

Nine months
ended
Year ended December 31, September 30,
2009 2010 2011 2012 2013 2014
(in U.S. dollars per barrel)
ICP(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61.6 79.4 111.6 112.7 105.8 104.4

Sources: Directorate General of Oil and Gas, Ministry of Energy and Mineral Resources
(1) For a description of the ICP, see Certain Defined Terms and Conventions.

The average monthly ICP was U.S.$61.6 per barrel in 2009, U.S.$79.4 in 2010, U.S.$111.6 per barrel in
2011, U.S.$112.7 per barrel in 2012, U.S.$105.8 per barrel in 2013 and during the nine months ended
September 30, of 2014, U.S.$104.4 per barrel.

The following table sets forth natural gas production by source for the periods indicated.

Natural Gas Production by Source(1)

Nine months
ended
Year ended December 31, September 30,
2009 2010 2011 2012 2013 2014
(in billions of cubic feet)
Pertamina(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 381 381 422 352 355 218
Production sharing contracts(3) . . . . . . . . . . . . . . . . . . . . . . 2,680 3,027 3,268 2,635 2,568 2,018
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,061 3,408 3,690 2,987 2,923 2,236

Source: Ministry of Energy and Mineral Resources

(1) Includes LPG.
(2) In 2003, Pertamina became a state-owned limited liability company.
(3) Most of the production under production sharing contracts is provided to Pertamina.

In mid-2009, natural gas production started to increase due to the development of new gas fields, such as the
Tangguh Field and the Grisik Field.

The Cepu block, located between the Central and East Java provinces, is estimated to contain oil reserves of
554 million barrels. Production in the Cepu block commenced in December 2008, with a production volume of
about 10,000 to 14,000 barrels per day. Production is expected to reach its peak in 2014 and 2015. The Masela
natural gas field is estimated to contain natural gas resources of approximately 9.7 trillion cubic feet. The Masela
natural gas project is still in the exploration stage.

In 2012, the Ministry of Energy and Mineral Resources estimated oil reserves to be approximately
7,408.24 billion barrels, comprised of proven reserves of 3,741.33 million stock tank barrels and potential
reserves of 3,666.91 million stock tank barrels. Natural gas reserves were estimated to be approximately
150.70 trillion standard cubic feet as of December 31, 2012, comprised of proven reserves of 103.35 trillion
standard cubic feet and potential reserves of 47.35 trillion standard cubic feet.

Bioenergy. In 2012, the electricity generated from on-grid bioenergy power plants was 75.5 MW. As of
March 31, 2014, the electricity generated from on-grid bioenergy power plants was 90.5MW, which represents
an increase of 19.9% (year on year). In the third quarter of 2013, the Government issued the Minister of Energy
and Mineral Resources Regulation No. 19 of 2013 on Power Purchase of Electricity by PT PLN (Persero) from
Power Plants that use Municipal Solid Waste (Ministerial Regulation No. 19/2013), which addressed the
purchase of electricity from power plants using municipal solid waste. The purpose of Ministerial Regulation
No. 19/2013 is to increase the utilization of municipal solid waste for power generation.

Utilization of biofuels as a source of energy was initiated in 2006 on Provision and Utilization of Biofuels as
an Alternative Fuel following the issuance of Presidential Instruction No. 1 of 2006. At the beginning of 2009,

78
the Government made the use of biofuels mandatory in transport, industry and power generation by
implementing the Minister of Energy and Mineral Resources Regulation No. 32 of 2008 on the Provision,
Utilization, and Procedure of Commerce Biofuels as an Alternative Fuel. The installed capacity for biodiesel is
currently 5.6 million kilogram liters per year, while the installed capacity for bioethanol (fuel grade ethanol) is
200 thousand kilogram liters per year. The percentage utilization of biodiesel in the transport sector (PSO) is
7.5% within a partial distribution area comprising Sumatera, Java, Bali and Kalimantan.

From September 1, 2013, due to the implementation of Ministerial Regulation No. 25 of 2013 (MR No.25
of 2013) (which is an amendment of Regulation No. 32 of 2008), the utilization targets for biodiesel have been
increased to 10.0% for PSO transport and power generation, 5.0% for industry and 3.0% for diesel non-PSO.
Under MR No. 25 of 2013 the new utilization targets for biodiesel in 2014 are 10.0% for PSO transport, 10.0%
for non-PSO transport, 10.0% for Industry and 20.0% for power generation. As at June 30, 2014, the distribution
network for biodiesel was still being refined to resolve outstanding problems with the distribution of biodiesel in
the eastern regions of Indonesia.

Geothermal. Electricity production from geothermal sources in 2009 was approximately 9,184 gigawatt-
hours and installed capacity increased by 13.0% to 1,189 MW compared to 2008. In 2010, electricity production
from geothermal sources was approximately 9,259 gigawatt-hours and total installed capacity as of December 31,
2010 was 1,189 MW. In 2011, electricity production from geothermal sources was approximately
9,254 gigawatt-hours and total installed capacity was approximately 1,226 MW. In June 2012, total geothermal
power plant installed capacity was 1,336 MW and electricity production from geothermal sources was
9,355 gigawatt-hours. In 2013, total installed capacity increased by 7.5 MW from 1,336 MW to 1,343.5 MW.
Electricity production in 2013 amounted to 9,323 gigawatt-hours. As of November 30, 2014, electricity
production from geothermal sources was approximately 7,313 gigawatt-hours and total installed capacity was
1,403.5 MW.

In September 2014, the Government issued Law No. 21 of 2014, which provided that geothermal utilization
activities are no longer classified as mining activities, thereby permitting geothermal utilization activities to be
performed in conserved forest areas, which are areas closed for mining activities under Law No.5 of 1990 on
Conservation and Bio Resources and Law No.41 of 1999 on Forestry. The Government has also set the price of
electricity from geothermal power plants through Ministerial Regulation No. 17 of 2014.

As of September 30, 2014, Indonesia had an installed electrical generating capacity of approximately
52.0 gigawatts, with 5.2% coming from oil/gas steam, 11.9% from diesel, 9.7% from hydro power, 26.9% from
gas, 2.6% from geothermal power, 43.4% from coal-fired power plants and 0.3% coming from renewable energy
mini-scale power plants. PLN owns approximately 71.1% of the installed capacity, independent power producers
(IPP) own approximately 20.4%, Private Power Utility (PPU) owns approximately 3.4% and Non-Oil Operating
License/ Izin Operasi (IO) owns about 5.2%. Indonesia will require additional power generation capacity of
approximately 237,020 gigawatts by 2031. The electricity sector faces numerous challenges in its development,
including: (i) a mismatch between the availability of primary energy resources, which are located mostly outside
Java and Bali, and demand for electricity, which mostly comes from Java and Bali; (ii) high dependence on oil
for power generation (12.5%) despite the abundance of coal resources within the country; and (iii) limited
availability of government funds and other resources to finance the construction of new power plants and
transmission and distribution networks. In its infrastructure development initiatives, the Government has placed
special emphasis on the development of power generation plants, particularly coal-fired power plants, in order to
reduce dependence on oil for power generation. One of the Governments ten model projects introduced at the
Indonesia Infrastructure Conference and Exhibition (IICE) in 2006 is a power generation project, the central
Java coal-fired power plant. The Government issued Presidential Regulation No. 78 of 2010 regarding
Infrastructure Guarantee for Public Private Partnership Projects through the Infrastructure Guarantee Agency, of
which the Government will give government guarantees to the 2 x 1,000 MW Central Java Coal-Fired Power
Plant. The winner of the tender of Central Java Coal-Fired Power Plant was announced by PLN on June 17, 2011.
The central Java coal-fired power plant is divided into two units, with the first unit expected to be operational in
August 2018, and the second unit to commence operations six months later.

Additionally, the Government has instructed PLN to accelerate its construction of coal power plants with
aggregate capacity of 10,000 MW and associated transmission lines. The Government of Indonesia has issued
Presidential Regulation No. 45 of 2014, amending Presidential Regulation No. 71 of 2006, which assigned PLN
the responsibility of accelerating the development of coal-fired power plants. The total general transmission
value was estimated at Rp95.89 trillion, and the Government has pledged certain credit support. PLN entered

79
into construction contracts in relation to 34 of the power plants comprising the 10,000 MW power plants
program, and the Government expects construction of these plants to be completed by the end of October 2015.
The aggregate value of the construction contracts is approximately U.S.$10 billion (assuming exchange rates of
U.S.$1 = Rp9,000 and 1 = Rp12,153.96). As of April 30, 2014, coal power plants in 10,000 MW Phase 1 have
generating capacity of approximately 6,917 MW (70.0% of the project total). Additional investment in power
generation, transmission and distribution lines and facilities will be required to meet expected demand. The
Government expects that from 2013 to 2022 the electricity sector will require U.S.$91.32 billion in investment
for the development of additional generation capacity, U.S.$19.41 billion in investment for electricity
transmission and U.S.$14.49 billion in investment for electricity distribution.

Minerals. The Republics major mineral products are tin, nickel, bauxite, copper and coal. In 2012, the
countrys estimated mineral reserves included 28.98 billion tons of coal (a slight increase from an estimated
28.17 billion tons in 2011), 27.18 million tons of copper (relatively the same from an estimated 27.18 million
tons in 2011), 410,491 tons of tin (an increase from an estimated 396,502 tons in 2011) and 1,162.71 million tons
of nickel (a slight decrease from an estimated 1,178.71 million tons in 2011).

The majority of the countrys mineral production is exported, accounting for approximately 16.7%, 16.2%,
17.1% and 16.6% of all exports in 2009, 2010, 2011 and 2012 respectively. Most of the mining activity in
Indonesia is conducted by three state-owned companies: PT Tambang Timah (Persero) Tbk (PT Timah), a tin
mining company; PT Tambang Batubara Bukit Asam (Persero) Tbk (PT Bukit Asam), a coal mining company;
and PT Aneka Tambang (Persero) Tbk (PT Aneka Tambang), a company that mines all minerals other than tin
and coal. Under Indonesian foreign investment rules, foreign companies may participate in the exploration and
development of minerals as partners in joint ventures with private Indonesian companies.

On February 6, 2012, the Minister of Energy and Mineral Resources Regulation No. 7 of 2012 on the
Increase of Added Value to Mineral by way of Mineral Smelting (Regulation 7/2012) was issued for holders of
mining concessions for metal minerals, such as gold, copper, tin, bauxite and iron sand, and non-mineral metals
such as quartz sand, in order to provide domestic smelting and refining facilities the ability to increase the
production of mineral products up to a minimum standard of smelting percentage set forth by the Government
prior to exporting such commodities. Mining concession holders must adjust their minimum standard smelting
percentages in compliance with Regulation 7/2012 within a three-to-five year period following the enactment of
Regulation 7/2012. In order to facilitate the building of smelter facilities in Indonesia by mining companies that
have evinced an intention and provided plans to conduct such activities, the Minister of Energy and Mineral
Resources revised Regulation No. 7/2012 through Regulation No. 11/2012 on May 16, 2012 (Regulation
11/2012). Regulation 11/2012 allows the export of raw materials or ore to production concession holders and
public mining concession holders after obtaining an approval from the Minister of Energy and Mineral Resources
c.q. Directorate General of Coal and Minerals. Such recommendation may only be given to production
concession holders and public mining concession holders that have a clean and clear mining concession license,
have settled their financial obligations to the state and have submitted a working and/or cooperation plan in
domestic mineral smelter and refinery. However, the Supreme Court issued Decisions No. 09P/HUM/2012 and
No. 10P/HUM/2012, both dated September 12, 2012, which ordered the revocation of certain provisions under
Regulation 7/2012.

MEMR No.1/2014 was issued in January 11, 2014 to replace Regulation 7/2012, Regulation 11/2012 and
Regulation 20/2013. MEMR No.1/2014 sets out the minimum quantity of domestic smelting and domestic
processing that concession holders and operation and production mining license holders must satisfy in relation
to mineral products in order for them to export such processed mineral products. Primary mineral commodities
such as nickel, bauxite, tin, gold and silver must be smelted to minimize any production of intermediary products
before they can be exported. To provide time for the completion of smelting infrastructure, certain processed
concentrates, including among others, copper, quartz sand and iron ore may continue to be exported in limited
quantities for the next three years up until 2017. Following the expiry of the three year grace period, only smelted
concentrates will be allowed to be exported.

80
 The table below sets forth selected production statistics for the mining sector.

Production of Principal Mineral Products

Year ended
Year ended December 31, December 31P,
2009 2010 2011 2012 2013

Tin ore concentrate (thousands of metric tons) . . . . . . . . . . 46 43 40 44 32

Nickel ore (thousands of wet metric tons) . . . . . . . . . . . . . 5,802 5,973 15,973 48,449 36,236
Bauxite (thousands of metric tons) . . . . . . . . . . . . . . . . . . . 14,720 27,410 40,643 31,443 55,655
Copper ore concentrate (thousands of dry metric tons) . . . 3,484 3,467 2,236 2,385 2,106
Coal (thousands of metric tons) . . . . . . . . . . . . . . . . . . . . . 256,181 275,164 353,271 359,409 375,060
Iron sand concentrate (thousands of wet metric tons) . . . . . 2,033 2,172 3,968 N/A N/A
Gold (kg) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 127,716 106,316 16,763 69,291 59,066
Silver (kg) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 326,773 288,717 200,982 N/A 247,609
Source: Ministry of Energy and Mineral Resources
P Preliminary

Tin. Indonesias tin-ore deposits are concentrated in the province of Belitung and Bangka group of islands
located off the eastern coast of Sumatera. The Government cancelled the mining contract previously held by PT
Koba Tin in September 2013. Tin metal production as at October 2013 stands at 99.86 tons, equivalent to the tin
metal production for the same period in 2012. Furthermore, due to the Minister of Trade Regulation
No. 32/M-DA6/PER/6/2013 (Trade Regulation 32/2013), all trading activities in tin metal commodities are to
be traded through the National Tin Market (also known as Inatin). Tin reserves based on estimates from the
Governments geological agency in 2012 showed there were reserves of approximately 0.8 million metric tons of
tin ore. Tin ore production as of December 31, 2013 decreased.

Nickel. Indonesia has some of the worlds largest reserves of nickel ore, located primarily in Sulawesi,
Halmahera Island in the north Moluccas and west Papua. Nickel ore production as of December 31, 2013 is
approximately 36.2 million tons, lower than nickel ore production for the same period in 2012. Nickel production
increased in 2012 compared to 2010 and 2011 due to of the implementation of Regulation 7/2012, Regulation
11/2012 and Minister of Energy and Mineral Resources Regulation No. 20 of 2013 (Regulation 20/2013).

Bauxite. Indonesias principal bauxite reserves are located on Bintan Island near Singapore and in West
Kalimantan. Bauxite ore production as of December 31, 2013 is approximately 55.7 million tons, which is higher
than bauxite ore production for the same period in 2012. This reversed the trend in bauxite production which
decreased in 2012 due to Regulation 7/2012, Regulation 11/2012 and Regulation 20/2013.

Copper. Copper deposits are found in Papua, Nusa Tenggara, Sumatera, Java and Sulawesi. The only copper
producing companies currently operating in Indonesia are PT Freeport Indonesia and PT Newmont Nusa
Tenggara. Copper ore production as of December 31, 2013 decreased. Copper production in 2012 increased
compared to 2011.

Coal. Indonesias coal industry has continued to grow in recent years as the country has diversified its
energy sources, decreasing its dependence on oil and making greater use of coal in electricity generation. Coal
production has increased to 375 million tons as of December 31, 2013, up from 359 million tons in the same
period in 2012. Most of the coal produced in Indonesia is exported. The majority of coal production that is
consumed domestically is used for electricity generation. Increases in coal production reflected strategic
production plans of coal companies. Coal production increased from 2011 to 2012 due to increased demand from
coal-fired power plants and power generation for domestic use.

Gold. Gold exploration in Indonesia has fluctuated in recent years. In 2009, 2010, 2011, 2012 and 2013,
Indonesia produced 128, 106, 17, 70 and 59 thousand kilograms of gold, respectively. Most of Indonesias gold
is exported. Gold production decreased by 10 thousand kilograms as of December 31, 2013 when compared to
the same period in 2012. Although gold production decreased at PT Freeport Indonesia and PT Newmont Nusa
Tenggara, three gold mining companies (PT Meares Soputan Mining, PT Tambang Tondano Nusajaya and PT
Kasongan Bumi Kencana) commenced their respective gold production activities in 2012.

Law No. 4 of 2009 on Mineral and Coal Mining (the Mining Law) was enacted on January 12, 2009 and
revoked Law No. 11 of 1967. The Mining Law revises the long-standing previously existing licensing and

81
contract system applicable to mining and quarrying activities in Indonesia. The Mining Law only recognizes a
single type of mining concession in the form of mining business licenses. Mining licenses issued under the
previous law are still recognized but shall be replaced by new mining business licenses within one year of the
enactment of the Mining Law. However, contracts under the previous law will remain effective until the expiry
of such contracts, subject to the obligation to adjust their terms to conform to the Mining Law within one year of
the enactment of the Mining Law. The Mining Law provides greater powers to local governments and requires
mine operators to process raw materials locally. The Mining Law also stipulates various conditions to be met by
mine operators and with respect to the mining area.

Within three years after the enactment of the Mining Law, exports of mineral products such as nickel ore
and bauxite have grown significantly. As a result, the Government has started to control export activities of
mineral products in order to secure the availability of raw materials for the domestic mineral smelting sector and
to mitigate the negative impact of excessive mining on the environment.

Transportation and Communications

In 2009, the transportation and communication sector grew by 15.5%, primarily driven by growth in the
communication and the transportation sub-sectors, which grew by 23.6% and 5.6%, respectively. Growth in the
transportation sub-sector was primarily fueled by growth in air transport, rail transport, and road transport, which
grew by 11.7%, 9.8%, and 5.7%, respectively. In terms of cargo, the sea transportation sub-sector grew by 7.4%,
while land transportation grew by 4.5%.

In 2010, the transportation and communication sector grew by 13.5%, primarily due to growth of 18.1% and
6.8% in the communication and the transportation sub-sectors, respectively. Growth in the communication
sub-sector was due to strong demand for mobile communication products and services. Growth in the
transportation sub-sector was primarily fueled by growth in air transport and river transport, which grew by
19.0% and 7.3%, respectively. Growth in the transportation sub-sector was offset by negative growth in sea
transportation. In 2010, sea transport cargo grew by 4.6%. For air transport, domestic passenger air transport
growth was 22.8%, international passenger air transport growth was 20.7% and international cargo air transport
growth was 56.8% and growth for domestic passenger air transport was 18.2% and domestic cargo was 20.8%.

In 2011, the transportation and communication sector grew by 11.2%, decreasing from the growth rate of
13.4% in 2010. This was mainly due to slower growth of 12.7% in the communication sub-sector. However, the
transportation sub-sector had growth of 7.6% in 2011, higher than its growth of 7.2% in 2010. Growth in the
transportation sub-sector was primarily fueled by growth in air transport, services tied to transport, and road
transport, which grew by 14.4%, 6.8% and 6.6%, respectively. In 2011, growth in demand for domestic
passenger air transport was 16.3% and international air transport was 23.2%, but international cargo air transport
decreased by 9.3%.

In 2012, Indonesias transportation and communication sector recorded growth of 10.2%, decreasing from a
growth rate of 12.1% in 2011. This was mainly due to slower growth of 6.4% in the transportation sub-sector.
The growth in the transportation sub-sector was primarily fueled by growth in river transport, services tied to
transport and road transport which grew by 8.0%, 6.9% and 6.9%, respectively. However, the communication
sub-sector grew by 12.5% in the first half of 2012, also slower than its 12.6% growth in 2011.

In 2013, the transportation and communication sector grew by 10.6%, compared to 10.1% in 2012,
primarily due to growth of 12.0% and 7.1% in the communication and transportation sub-sectors, respectively.
Growth in the transportation sub-sector was primarily fuelled by growth in road transport and auxiliary
transportation services, which grew by 7.8% and 7.5%, respectively.

For the nine months ended September 30, 2014, the transportation and communication sector grew by 9.7%,
primarily due to growth in the communication and transportation sub-sectors of 10.7% and 7.7% respectively.
Growth in the transportation sub-sector was primarily fuelled by growth in rail transport and sea transport, which
grew by 21.3% and 8.7%, respectively.

82
Labor and Employment
Labor
The following table sets forth the proportion of the employed labor force in each sector of the economy as of
August 2009 through August 2014.

As of August As of August(1)
Sector 2009 2010 2011 2012 2013 2014
(percentages) (in millions) (%)
Agriculture . . . . . . . . . . . . . . . . . . . . . . 39.7 38.3 35.9 35.1 34.3 39.0 34.0
Industry . . . . . . . . . . . . . . . . . . . . . . . . . 12.2 12.8 13.3 13.9 13.4 15.3 13.4
Construction . . . . . . . . . . . . . . . . . . . . . 5.2 5.2 5.8 6.1 5.7 7.3 6.4
Trade . . . . . . . . . . . . . . . . . . . . . . . . . . . 20.9 20.8 21.3 20.9 21.4 24.8 21.6
Transportation, warehouses, and
communications . . . . . . . . . . . . . . . . 5.8 5.2 4.6 4.5 4.5 5.1 4.4
Financial . . . . . . . . . . . . . . . . . . . . . . . . 1.4 1.6 2.4 2.4 2.6 3.0 2.6
Public services . . . . . . . . . . . . . . . . . . . 13.4 14.7 15.2 15.4 16.4 18.4 16.1
Others (mining, electricity, gas and
water) . . . . . . . . . . . . . . . . . . . . . . . . 1.3 1.4 1.5 1.7 1.5 1.7 1.5
Total . . . . . . . . . . . . . . . . . . . . . . . 100.0% 100.0% 100.0% 100.0% 100.0% 114.6 100.0%

Source: BPS
(1) Estimation using population projections weighing results.

As of August 2009, the working age population reached 169.3 million people. Of the working age
population, 113.8 million, or 67.2%, were members of the work force, further divided into 104.9 million who
were employed and 9.0 million who were actively seeking jobs. The portion of workers who were
underemployed remained relatively stable at 27.7% of the work force as of August 2009.

Indonesias open unemployment rate decreased to 7.1% in August 2010, reflecting an increase in economic
activity. From August 2009 through August 2010, 3.3 million jobs were created, which absorbed 2.7 million new
workers entering the labor market during that period. As of August 2010, the working age population reached
172.1 million people, an increase of 2.7 million from the population in August 2009. Of the working age
population, 116.5 million, or 67.7%, were members of the work force, further divided into 108.2 million who
were employed and 8.3 million who were actively seeking jobs. The portion of workers who were
underemployed remained relatively stable at 28.6% of the work force as of August 2010, compared to 27.7% as
of August 2009.

Indonesias open unemployment rate decreased to 6.6% in August 2011, reflecting an increase in economic
activity. From August 2010 through August 2011, 1.5 million jobs were created which absorbed 0.8 million new
workers entering the labor market during that period. As of August 2011, the working age population reached
171.7 million people. Of the working age population, 117.4 million, or 68.3%, were members of the work force,
further divided into 109.7 million who were employed and 7.7 million who were actively seeking jobs. The
portion of workers who were underemployed increased to 29.5% of the work force as of August 2011 as
employers hired more part-time workers.

Indonesias open unemployment rate decreased to 6.1% in August 2012, reflecting an increase in economic
activity. From August 2011 through August 2012, 1.1 million jobs were created, which absorbed 0.7 million new
workers entering the labor market during that period. In August 2012, the working age population reached
173.9 million people, an increase of approximately 2.1 million from the population in August 2011. Of the
working age population, 118.0 million, or 67.9%, were members of the work force, further divided into
110.8 million who were employed and 7.2 million who were actively seeking jobs. The portion of workers who
were underemployed remained around 29.0% of the work force as of August 2012.

Indonesias open unemployment rate decreased to 6.1% as of August 31, 2013, reflecting an increase in
economic activity. As of August 31, 2013, the working age population of 118.2 million, further divided into
110.8 million who were employed and 7.4 million who were actively seeking jobs.

As of August 31, 2014, the Indonesian labor force consisted of 121.9 million people, which represents a
decrease of 3.4 million people compared to the labor force in February 2014, but an increase of 1.7 million

83
people compared to the labor force in August 2013. The number of employed residents is 114.6 million people as
of August 31, 2014, representing a decrease of 3.5 million people compared to February 28, 2014, but an increase
of 1.9 million people compared to August 31, 2013. The open unemployment rate in August 2014 was 5.9%,
compared to 5.7% in February 2014, and 6.2% in August 2013. From August 2013 to August 2014, there was an
increase in employee absorption in all sectors, except for agriculture and public services. The construction sector
absorbed 0.9 million people, the trade sector absorbed 0.7 million people and the industrial sector absorbed
0.3 million people. In August 2014, elementary school graduates and university graduates comprised 47.1% and
8.2% respectively of employed residents.

Despite improvements in recent years, unemployment is expected to remain a problem in Indonesia if

economic growth and job creation fail to keep pace with population growth.

In 2013, the Government issued Government Regulation No. 33 of 2013 on Expansion of Working
Opportunity in order to increase employment in accordance with Manpower Law Number 13 of 2003. This
regulation reflects an effort to create new areas of work and to develop existing areas of work through
employee-employer relationships and entrepreneurial programs. The Government provides various forms of
assistance (which, among others, encompass tax relief and infrastructure support) to encourage employers to
create jobs for employees while also creating and developing productive and sustainable working opportunities
through entrepreneurial programs, the use of technology and encouraging voluntary work.

In 2012, the Government implemented the Ministry of Labor and Transmigration Regulation No.
PER.17/MEN/VIII/2005 on Component and Implementation Phases to Achieve Decent Living Needs by issuing
Ministry of Labor and Transmigration Regulation No. 13 of 2012. The Government has committed to make
public any decision of the Constitutional Court that requires an amendment to the Manpower Law.

Regional governments have the power to establish minimum wage requirements through tripartite wage
boards and do so from the beginning of each calendar year. The table below sets out the national average
minimum wage for each year and the average increase across the country for each year.

National average Increase in average

Year minimum wage minimum wage

2009 .......................................................... Rp841,529.6 11.3%

2010 .......................................................... Rp908,824.5 8.2%
2011 .......................................................... Rp988,829.4 8.7%
2012 .......................................................... Rp1,088,902.6 10.1%
2013 .......................................................... Rp1,296,908.5 19.1%
2014 .......................................................... Rp1,584,404.0 22.2%
Source: Kemennaker Trans (the Ministry of Manpower and Transmigration)

Pension and Health Funds

The pension system in Indonesia consists of compulsory and voluntary pension funds. The compulsory
system includes health insurance for government employees (not including employees of state-owned-
enterprises) administered by PT Askes (Persero), pension plans for government employees (not including
employees of state-owned-enterprises) administered by PT Taspen (Persero), old age savings for the police and
armed forces administered by PT Asabri and old age security for private sector and state-owned-enterprise
employees (in companies that meet minimum requirements stipulated in the relevant law) administered by PT
Jamsostek (Persero).

The establishment of pension funds for non-government employees is regulated by a 1992 law that provides
for the establishment of two types of pension funds: employer pension funds, which are provided by a private
employer to its employees, and financial institution pension funds, which are chosen and obtained by an
employee from a financial institution. In addition, the law and several government regulations and decrees
specify the types of assets that these pension funds may acquire, as well as the permissible allocation of
investments among assets and asset classes. See Financial System Banks and Other Financial Institutions.

In October 2004, the Government adopted Law No. 40 of 2004 on National Social Security System (Sistem
Jaminan Sosial Nasional or the SJSN Law), which establishes a national program designed to ensure social
protection and welfare to all Indonesian citizens. When implemented, the SJSN Law will provide health,

84
accident, retirement, old age and death benefits to employees and will be funded by defined contributions from
the employee and employer, while payments to lower income persons will be funded by the Government. The
Ministry of Finance recently arranged three drafts of presidential regulations on retirement, death and old age
social insurance and has submitted them to the Coordinating Minister of Peoples Welfare.

On November 25, 2011, Law No. 24 of 2011 on Social Security Administering Agencies (Badan
Penyelenggara Jaminan Sosial or BPJS) was passed to help implement the SJSN Law. BPJS is to consist of
two bodies, namely BPJS for Health Coverage (BPJS Kesehatan) which will provide universal healthcare for all
citizens, and BPJS for Social Security Benefit for Workers (BPJS Ketenagakerjaan) which will provide
work-related accident insurance, pension payments, old age benefits, and death benefits for all workers (formal
and informal).

BPJS was established initially by transforming PT ASKES and PT Jamsostek, and, at a later stage, PT
Taspen and PT Asabri. BPJS Kesehatan has been fully operational on January 1, 2014 by the transformation of
PT ASKES and will provide healthcare services for all citizens including through those programs that were
formerly provided by PT Jamsostek and PT Asabri (the healthcare program for police and armed forces). BPJS
Ketenagakerjaan was established on January 1, 2014 and is expected to be fully operational by July 2015, in
order to provide social security benefits for private sector and informal workers. Once PT Asabri and PT Taspen
have been transformed into BPJS Ketenagakerjaan, the agency will provide universal social security benefits for
all workers. This phase is planned to be finalized by 2029, at the latest.

On December 24, 2013, OJK and the National Social Security Board (Dewan Jaminan Sosial Nasional, or
DJSN) entered into a Memorandum of Understanding (MoU) to agree on the scope of external supervisory role
of OJK towards BPJS Kesehatan and BPJS Ketenagakerjaan. OJK will supervise the agencies financial
soundness, implementation of good corporate governance, management and performance of investment portfolio,
implementation of risk management and control, detection and settlement of financial crimes, valuation on assets
and liabilities, compliancy with regulations, and fee ratio and systemic monitoring effect. These are further
regulated under OJK Regulation No. 5/POJK.05/2013 dated December 31, 2013.

On April 1, 2014, OJK issued Circular Letter No. 5/SEOJK.05/2014 regarding the Monthly Financial Report
of BPJS and Monthly Financial Report on Social Security Fund. This letter requires BPJS Kesehatan and BPJS
Ketenagakerjaan to submit monthly financial reports on the 15th day of the following month.

Income Distribution
The following table shows income distribution as of the end of the periods indicated.

Income Distribution
(percentage of total national income)

As of December 31,
2009(1) 2010(1) 2011(1) 2012(1) 2013(1) 2014(3)

Lowest 40.0% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21.2% 18.1% 17.7% 16.9% 16.9% 17.2%

Middle 40.0% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37.5% 35.5% 35.9% 34.2% 34.1% 34.2%
Highest 20.0% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41.2% 45.5% 46.5% 48.9% 49.0% 48.5%
Gini Index(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.37 0.38 0.39 0.41 0.41 0.41
Source: BPS (Based on Annual Panel National Socio Economic Survey last conducted in 2013)
(1) Starting in 2008, the method of calculation for the Gini Index shifted from the household approach to the individual approach.
(2) The Gini Index is a measure of income distribution that ranges between 0.0 and 1.0, with higher numbers indicating greater inequality. In
practice, the lowest values do not go below 0.2 and the highest value may reach 0.6.
(3) As of September 30, 2014.

Income distribution improved during the Asian financial crisis, as the manufacturing sector suffered the
greatest losses, and the agricultural sector performed relatively well by comparison. In addition, the depreciated
Rupiah provided better returns to primary commodities producers. Because agriculture and primary commodities
producers tend to be concentrated in rural areas with lower income levels, the Asian financial crisis reduced
income disparity somewhat across different regions and different sectors of society. Income distribution, as
measured by the Gini index, has remained relatively constant from 2009 through 2013.

85
 However, the percentage of people living below the poverty line has exhibited a decreasing trend since the
Asian crisis in 1998. Approximately 49.5 million people, or 24.2% of the population, were living below the
poverty line in 1998, which decreased to approximately 28.3 million as of March 2014, or 11.2% of the
population as of March 2014. This percentage decreased in each period from 1998 to 2013, except 2006, when
the Republic experienced increases in domestic oil prices in March and in October 2005 that caused annual
inflation to rise to 18.0% in March 2006. The Government has implemented policies to further decrease poverty
to a targeted range of 9.0% to 10.5% in the Revised 2014 Budget, in accordance with the National Medium Term
Development Plan.

The following table shows the number of people and percentage of the population living below the poverty
line as of the dates indicated.

People living below poverty line

Number Percentage of
of people population
(millions)
March 2009 ............................................................. 32.5 14.2%
March 2010 ............................................................. 31.0 13.3%
March 2011 ............................................................. 30.0 12.5%
March 2012 ............................................................. 29.1 12.0%
March 2013 ............................................................. 28.0 11.4%
March 2014 ............................................................. 28.3 11.2%
Source: Panel National Socio Economic Survey

BPS measures poverty using a basic needs approach and defines poverty as an economic inability to fulfill
food and non-food basic needs, measured by consumption and expenditure. BPS sets the poverty line by
calculating two components, the Food Poverty Line (FPL) and the Non-Food Poverty Line (NFPL), and
calculates a separate poverty line for urban and for rural areas. The FPL is set using a daily minimum
requirement of 2,100 kcal per capita per day. The NFPL is set using a minimum expenditure per month per
capita. As of March 30, 2013, the FPL and NFPL were approximately Rp199,691 and Rp71,935, respectively,
and the total poverty line was Rp271,626. As of March 30, 2013, the FPL and NFPL for urban areas were
approximately Rp202,137 and Rp86,904, respectively, while for rural areas, the FPL and NFPL were
approximately Rp196,215 and Rp57,058, respectively, and the total poverty line for urban and rural areas were
Rp289,041 and Rp253,273, respectively.

As of March 30, 2014, the FPL and NFPL were approximately Rp222,628 and Rp80,107, respectively, and
the total poverty line was Rp302,735. As of March 30, 2014, the FPL and NFPL for urban areas were
approximately Rp223,091 and Rp95,423, respectively, while for rural areas, the FPL and NFPL were
approximately Rp221,379 and Rp64,718, respectively, and the total poverty line for urban and rural areas was
Rp318,514 and Rp286,097, respectively.

Infrastructure Development
The 1997-98 Asian financial crisis placed a great strain on Indonesias infrastructure. During that crisis, the
overall quality of the nations infrastructure decreased as public spending in real terms was reduced and many
planned private infrastructure projects were suspended or cancelled. Although the Asian financial crisis has
ended, Indonesia continues to face major challenges in improving its infrastructure at the same time as it seeks to
consolidate and accelerate its economic recovery, improve its international competitiveness and increase access
to basic public services. A key priority of the Government is to encourage infrastructure development as a means
to accelerate economic growth particularly in rural areas, support further industrial development and improve the
lives and economic welfare of Indonesians by reducing unemployment and poverty. In order to promote
infrastructure development, the Government allocated Rp2.0 trillion in each of 2006 and 2007 for infrastructure
development. The Revised 2008 Budget allocated Rp2.8 trillion for investment funds, of which Rp1.0 trillion
was allocated for initial capital for the establishment of the Indonesia Infrastructure Fund. In the Revised 2010
Budget, Revised 2011 Budget, the Revised 2012 Budget, the Revised 2013 Budget and the Revised 2014 Budget,
the Government allocated Rp12.9 trillion, Rp21.1 trillion, Rp19.3 trillion, Rp20.6 trillion and Rp9.3 trillion,
respectively, for investment funds, which includes funds for infrastructure development. These funds are
currently managed by the IIA, but a portion of the funds is expected to be managed by the Indonesia
Infrastructure Fund, which commenced operation in January 2010, while the IIA commenced operation in

86
December 2008. In December 2009, the Government established PT Penjaminan Infrastuktur Indonesia
(Indonesia Infrastructure Guarantee Fund, or PT PII) pursuant to Presidential Instruction No. 5 of 2008 on
Economic Program Focus of 2008-2009 Presidential Instruction 5/2008 and Government Regulation No. 35 of
2009 on Capital Participation of the Republic of Indonesia for the Establishment of a Guarantee Company in
Infrastructure Business. The Government allocated Rp1.0 trillion towards such Guarantee Fund in 2009 as initial
capital. To increase the guarantee capability of PT PII, the Government allocated an aggregate of Rp3.5 trillion
from the state budgets in 2010, 2011, 2012 and 2013. The Guarantee Fund is expected to cover the guarantee of
certain risks for infrastructure projects in Indonesia structured as public private partnership projects. To support
the guarantee infrastructure mechanism conducted by PT PII, the Government has issued Presidential Regulation
No. 78 of 2010 on Government Guarantee for Public Private Partnership Infrastructure Projects Performed
through Business Entity on Infrastructure Guarantee and Minister Finance Regulation No. 260/PMK.011/2010 on
Implementation Guideline on Infrastructure Guarantee in Cooperation Projects between the Government and
Business Entities.

Due to budgetary constraints, the Governments main aim is to concentrate on maintaining and upgrading
existing infrastructure and to focus on economically feasible but financially non-viable infrastructure.
Additionally, because the Government has projected that Indonesias infrastructure investment requirements are
in excess of expected available public sector funding, the Government intends to fund the gap through greater
private sector participation. Results have been positive with respect to toll road and power generation projects.
The Government has transferred Rp2.0 trillion to two newly established agencies that aim to support private
sector participation in infrastructure: BLU Investment in the Ministry of Finance, which manages government
fiscal support for infrastructure, and BLU Land Acquisition in the Ministry of Public Works.

In November 2006, the Government held the IICE where it offered ten major infrastructure projects (the
model projects) for public tender valued at more than U.S.$4.5 billion, including three water treatment projects,
two power generation projects, two toll road projects, two transportation sector projects and one
telecommunications project. These projects are currently at different phases of development, ranging from
project definition to construction between the Government and the selected bidder. In April 2011, the
Government also held the Indonesia International Infrastructure Conference and Exhibition. This event focused
on inviting investment in the sectors of transportation, power generation, renewable energy development,
information technology, water and sanitation.

On May 26 and 27, 2008, the Regional Representatives Council hosted the Indonesian Regional Investment
Forum (IRIF), the latest in a series of infrastructure summits to promote private infrastructure investment in
Indonesia. At the IRIF, local government representatives were present and approximately 200 infrastructure
projects with an aggregate investment value of approximately U.S.$19.0 billion were offered for public tender,
including the proposed Bojonegara International Port and Tanah Ampo Cruise Terminal, Cilegon-Bojonegara
Toll Road, Balaraja Agribusiness Terminal, Kaliwungu Port and Industrial Area and Cisolok-Cisukarame and
Tampomas Geothermal Power Plants and various water, mining and geothermal and hydroelectric power plants
throughout the provinces of Indonesia.

The Government continues to prioritize infrastructure development and to promote cooperation between
state-owned-enterprises and the private sector towards this end. Several key infrastructure projects are being built
across various sectors, including electricity (such as the Central Java Power Plant Project), ports (such as
Tanjung Priok in Jakarta, Teluk Lamong near Surabaya, Batu Ampar in Batam, Kuala Tanjung International Hub
in the Malacca Straits, Sorong West Pacific Hub Port the expansion of the Tanjung Priok Port, Cilamaya in West
Java and the Tanah Ampo Cruise Terminal at Kabupaten Karangasem Bali), railways (such as the Manggarai-
Soekarno Hatta Railway Track Project and the Central Kalimantan Coal Railway Project), airports (such as the
Kertajati Airport Project), toll roads (such as the trans Sumatera Toll Network, comprising the Bakauheni-
Palembang-Pekan and Baru-Medan-Banda Aceh main routes as well as the Palembang-Bengkulu, Pekanbaru-
Padang and Medan-Sibolga sub-routes, as well as the 24 toll road projects in various regions as well as the Trans-
Java toll road project), water supply (such as the Umbulan, Bandar Lampung, Southern Bali and Lamongan
supply projects) and housing (such as approximately 1,000 multi-story housing projects in various regions). As
of the end of 2010, the Government had completed the following infrastructure projects: 147 kilometer toll road
in Java and South Sulawesi; the Surabaya to Madura (Suramadu) bridge; the spin-off of railway management for
Jabodetabek and South Sumatera; the Hasanuddin Airport in Makassar; continued expansion of the port facility
in Tanjung Priok; rural telephone development in Desa Berdering and Desa Pintar; the development of East
Canal Floodways and improvement of West Canal Floodways in Jakarta; as well as development of waste water
infrastructure and moderate multi-story housing in various cities. Maritime connectivity is expected to improve
with the establishment of the main sea corridor or the Indonesia east-west pendulum, connecting the six ports of

87
Belawan, Batam, Tanjung Priok, Surabaya, Makasar and Sorong. Port facilities in Belawan are scheduled to be
operational in 2015. In 2011 and 2012, 16.80 kilometers of toll road were completed. At the end of December
2012, there were approximately 751.4 kilometers of open toll roads and the sea toll road connecting Nusa Dua-
Ngurah Rai Airport-Benoa was completed in July 2013. The Government is in the process of developing a four-
lane toll road connecting Jakarta to Surabaya (the Trans-Java Toll Road Project). In addition, a trans-Sumatera
toll road project was initiated in October 2014, as part of MP3E1, under an assignment by the Government to PT
Hutama Karya (Persero) under a presidential regulation. The first phase of the project is scheduled to take 4 years
to complete, and is approximately 300 kilometers in length and comprises the Medan-Binjai, Pekanbaru-Dumai,
Palembang-Indralaya and Bakauheni-Terbanggi Besar sections. The whole project from start to finish is
anticipated to take 11 years to complete. See Transportation.

The Government believes there are opportunities for private sector participation in the solid waste sector
such as in transporting solid waste in larger cities such as Jakarta and Surabaya. Private parties may also partner
with local governments through Clean Development Mechanism (CDM) solid waste management, flaring
methane gas in landfills and trading this as carbon credits under applicable international regimes. CDM projects
have been in operation in Suwung (Bali), Sumur Batu and Bantar Gebang (Bekasi), Sukowinatan (Palembang),
Tamangapa (Makassar), Piyungan (Yogyakarta) and Gianyar (Bali). Solid waste management is governed by
Law No. 18 of 2008 on Waste Management and Minister of Public Works Regulation No. 21/PRT/M 2006 on
National Policy and Strategy on Solid Waste Management System Development.

The Government is committed to reforms of regulations that require private investors to enter into
concession agreements even when significant uncertainty in the acquisition of land for a project remains. The
Government enacted Law No. 2 of 2012 on Land Procurement for Development in the Public Interest on
January 14, 2012, (Law 2/2012), followed by Presidential Regulation No. 71 of 2012 on Land Procurement for
Public Interest Projects on August 7, 2012 (Presidential Regulation No. 71/2012). In addition, the Government
established an Execution Committee of Land Acquisition whose membership consists of the head of the National
Land Agency, the land acquisition officer in the Regional Office of National Land Agency (province), the head
of the Land Office (district), the related officer in the Local Government Office, the Head of Regency, and the
Head of Village, which were also designed to shorten the land acquisition process and to cap costs relating to
land acquisition.

Law 2/2012 sets forth principles of land procurement for development in the public interest in which the
central Government and/or regional government will guarantee the provision of land and funding. There are
18 definitive fields of development categorized as public interest, including, among others: (i) public road, toll
road, railways; (ii) seaport, airport and terminals; (iii) oil and gas and geothermal infrastructure; (iv) electricity
power generation, transmission and distribution of electricity power; and (v) government telecommunication and
information network. The Government will negotiate compensation for land procurement, based on appraisal
valuation. Compensation for land procurement to the land owner may be given in the form of cash, land
substitution, relocation, share ownership or any other agreed form. Disputes will be determined initially by
district courts and subsequently by the Supreme Court. The Government may award compensation based on such
final court judgment in the relevant district court. Funding for land procurement will come from state and/or
regency budgets, except in respect of land procurement on behalf of state-owned-enterprises, which will be
sourced internally or from other sources according to the prevailing regulations.

Presidential Regulation No. 71/2012 was enacted on August 7, 2012 as the implementing regulation for Law
No. 2 of 2012 which replaced the old Presidential Regulation No. 36 of 2005. Under this Presidential Regulation,
certain ongoing land acquisition for public interest projects would still need to be completed following the old
regulatory regime until December 31, 2014. The transitional provisions of the Presidential Regulation, however,
provide that land in an ongoing land acquisition process which has not been acquired by December 31, 2014 can
be procured following the procedures set out in the Presidential Regulation. These transitional provisions in the
Presidential Regulation indicate that the new land acquisition regulatory regime is only applicable for new land
acquisition processes or land acquisition processes in the preparation stage where the land acquisition planning
documents are still being processed.

On September 18, 2014 a second amendment to Presidential Regulation 71/2012 was enacted by virtue of
Presidential Regulation No.99 of 2014. Under this new regulation, monetary compensation for land acquisition
shall be paid within 14 days (previously seven days), after validation by the relevant head of land procurement
for the project. Further, the new regulation prolongs the transitional period of land procurement under the
previous regime from December 31, 2014 to December 31, 2015, subject to the condition that 75% of such land
acquisition process under the previous regime must have already been completed. If such land acquisition

88
process cannot be completed after December 31, 2015 then the remaining land procurement shall be carried out
under the provisions of Presidential Regulation 71/2012 and its amendments.

If there are no objections or appeal requests, the land acquisition process will take around 319 working days.
If there is an objection or appeal request, the Presidential Regulation sets a maximum of 583 working days from
the date the Governor receives the land acquisition plan documents until land certification/registration is
completed.

The land title itself is extinguished upon the granting of the compensation or the deposit of the
compensation in the court or upon completion of land title release. The Presidential Regulation also allows
commencement of construction above the procured land after delivery of the procured land to the institution that
needs the land without waiting for the land certificate to be issued, but the institution must still have registered
the procured land within 30 working days after the procured land is delivered to the institution.

As stipulated in Presidential Regulation 71/2012, the National Land Agency (BPN), the Ministry of Home
Affairs and the Ministry of Finance are required to issue the implementing regulation for Land Procurement.
BPN issued the Head of the National Land Agency Regulation No. 5 of 2012 as technical guidance to the
implementation of land acquisition for development for public interest. On October 30, 2012, the Minister of
Home Affairs issued Minister of Home Affairs Regulation No. 72 of 2012 regarding operating and support costs
involved in the implementation of land acquisition for development for public interest deriving from Regional
Government Budget (APBD) while the Minister of Finance issued Minister of Finance Regulation
No. 13/PMK.02/2013 regarding operating and support costs involved in the implementation of land acquisition
for development for public interest deriving from the state budget.

On April 24, 2014 Presidential Regulation No. 40 of 2014 was enacted to amend Presidential Regulation
71/2012. The amendment aimed to: (i) align operational and supporting costs for land acquisition of specially
assigned state-owned-enterprises and for infrastructure development of upstream oil and gas activities with
Minister of Finance Regulation No. 13/PMK.02/2013 and (ii) provide flexibility for government institutions to
directly acquire up to five hectares of land for public interest purposes.

Finally, the Government set up a land acquisition revolving fund. The Government allocated Rp3.85 trillion
to the fund in the Revised 2011 Budget, Rp900 billion in the Revised 2012 Budget and did not allocate any funds
in the Revised 2013 Budget. In relation to this, the Government allocated Rp4.89 trillion to support a national
policy on land capping for 28 toll roads. Under this policy, the Government bears the cost of land clearance
necessary to prepare land for a project in excess of a set ceiling. This policy is limited to projects that the
Government has determined to be financially feasible. In 2011, the Government allocated Rp3.85 trillion for the
land acquisition revolving fund to the Badan Pengatur Jalan Tol (BPJT) and utilized around Rp753 billion. In
2012, the Government allocated Rp900 billion for the land acquisition revolving fund. In 2014, the Government
allocated Rp1.6 trillion for the land acquisition revolving fund. From 2007 through 2012, the Government
allocated Rp7.05 trillion for the land acquisition revolving fund and utilized around Rp3.02 trillion to support
land acquisition for toll road projects. The Government utilized the land acquisition fund to support three toll
road PPP projects: Pasir Koja-Soreang, Pandaan-Malang and Pekanbaru-Kandis-Dumai. The Government
allocated Rp323.17 billion in the Revised 2011 Budget, Rp117 billion in the Revised 2012 budget, and
Rp160 billion in the Revised 2013 Budget to fund the three toll road PPP projects.

Prior to 2006, the Government had taken the position that it would not provide any guarantees or other
direct credit support for infrastructure projects undertaken by the private sector. The lack of such support was a
contributing factor to the low level of infrastructure project development in Indonesia after the Asian financial
crisis. In May 2006, the Ministry of Finance established a Risk Management Unit under its new Fiscal Policy
Office to oversee the implementation of a new government policy of sharing certain risks, such as political risk,
project performance risk and product offtake risk, and to approve direct government credit support for
infrastructure projects. Under this policy, the Government has agreed to grant full credit support for the
10,000 MW power plant program of PLN and a minimum revenue guarantee for the Jakarta Monorail Project. In
addition, the Government allocated a land fund to support the Trans-Java Toll Road Project. See Public Debt
Contingent Liabilities.

Since February 2006, the Government has also introduced or implemented a number of sector-specific
reforms to encourage infrastructure development, including the requirement that the relevant ministries prepare
long-term infrastructure development master plans for their sector. The Government has adopted implementing
regulations related to roads and utilities and has fostered the establishment of self-regulatory bodies in the toll

89
road, oil and gas, telecommunications and water supply sectors. In 2006, through Regulation of the Minister of
Public Works No. 10/PRT/2006 on Procedure of Use of Fund for Toll Roads Land Procurement, the Government
established a working team to address land acquisition problems, which has been the main obstacle to toll road
development projects.

In April 2007, the Government also enacted Law No. 25 of 2007 on Investment (the New Investment Law),
which is expected to encourage investment overall, including investment in infrastructure projects. In April 2007
and February 2008, the Government adopted regulations designating the types of financial instruments through
which the Government could utilize public funds to make direct and indirect investments in infrastructure
projects. See Foreign Investment.

Government Regulation No. 1 of 2008 on Government Investment, dated February 4, 2008, as amended by
Government Regulation No. 49 of 2011, provides mechanisms for government investment in various sectors,
including investment in both debt and equity securities as well as direct investment through the purchase of
equity or the provision of loans. Government investment will be conducted and managed by a Government
Investment Agency which will be regulated and supervised by the Minister of Finance.

On May 22, 2008, the Government issued Presidential Instruction 5/2008, which aims to increase
transparency in the Governments programs to alleviate poverty and unemployment. The Economic Program for
2008-2009 addresses a range of issues relating to the improvement of the investment climate, financial sector
reforms, the energy sector, natural resources, environment and agriculture, the empowerment of micro, small and
medium enterprises, the ASEAN economic community, labor and transmigration and related infrastructure
development issues. The Presidential Instruction 5/2008 seeks to implement the following measures:
(i) improvement of institutional services in banks, state-owned-enterprises, energy companies and agricultural
companies, and of services related to distribution of goods, custom facilities, taxation services and land
registration; (ii) simplification of procedures for application of business licenses regionally and nationally; and
(iii) increase in quality and productivity of each sector particularly the banking, energy and agriculture sectors.
The Presidential Instruction 5/2008 requires certain details regarding each program to be specified, including
clear targets, timetable and a responsible minister or head of agency.

In late 2010, the Government showcased five infrastructure PPP projects: (i) Tanah Ampo Cruise Terminal,
Bali (estimated investment value: U.S.$36 million); (ii) Soekarno Hatta Manggarai rail link (estimated
investment value: U.S.$2 billion); (iii) Coal Fired Power Plant, Central Java (estimated investment
value: U.S.$4.0 billion); (iv) Medan-Kuala Namu-Tebing Tinggi toll road, North Sumatra (estimated investment
value: U.S.$628 million); and (v) Umbulan Water Supply, East Java (estimated investment value: U.S.$204.2
million). The five PPP projects showcased in 2010 are at various stages of development: (i) Tanah Ampo Cruise
Terminal, Bali is targeted to be operational in 2015. The project has been subject to delays resulting from
restrictions imposed by the asset valuation conducted by the Directorate General of State Assets. The settlement
and finalization of concession and tender documents is dependent upon the asset valuation; (ii) Soekarno Hatta
Manggarai rail link is targeted to reach pre-qualification stage in the first quarter of 2015. However, the
project is currently experiencing delays relating to the guarantee by PT Penjaminan Infrastruktur Indonesia
(Indonesia Infrastructure Guarantee Fund) in relation to the method for determining recourse and approval on the
amount of the viability gap fund, as well as delays in the settlement of inter-sectorals/institutional issues such as
the settlement of approval letters on the construction site; (iii) Coal Fired Power Plant, Central Java land
acquisition is ongoing with 197.58 ha equal to 84.7% of the total 226 ha required obtained; (iv) Medan-Kuala
Namu-Tebing Tinggi toll road, North Sumatra has started construction of the Medan-Kuala Namu section, which
is approximately 17.8 kilometers and is scheduled for completion in 2016. As of November 2014, its construction
was approximately 17.6% complete; and (v) Umbulan Water Supply, East Java is currently delayed due to the
ongoing licensing process relating to the use of land for the placement of drinking water pipeline along the PT.
Kereta Api Indonesia line and in the area of Pasuruan Industrial Estate Rembang. Further delays have resulted
from the guarantee process by PT Penjaminan Infrastruktur Indonesia (Indonesia Infrastructure Guarantee Fund)
in relation to the method for determining recourse and approval on the amount of the viability gap fund.

The Government will focus on preparing, transacting, financing and constructing these projects as a
showcase for infrastructure development through the public-private partnership scheme. The contract of the Coal
Fired Power Plant Central Java PPP Project was signed on October 6, 2011 between PT PLN and PT Bhimasena
Power Indonesia.

90
 The Government currently has two main strategies for infrastructure development, being the MP3EI and the
National Logistic System (Sistem Logistik Nasional or Sislognas). For further information on MP3E1, see Key
Regulatory Updates Master Plan for Acceleration and Expansion of Indonesias Economic Development
2011-2025.

In the Revised 2014 Budget, the Government allocated Rp184.2 trillion for capital expenditures as
compared to Rp172.4 trillion for actual capital expenditure in 2013. This budget was allocated for the
development of six infrastructure projects, including electricity, air, road, railway, port, and agriculture
infrastructure. These projects include, among others, development of long distance electricity transmission
networks, construction of new airports and revitalization of old airports, procurement of new land transportation
vehicles and expansion of irrigation networks.

The Governments major infrastructure projects include, but are not limited to:
Electricity: the Central Java Power Plant Project.
Water Supply: the Umbulan, Bandar Lampung, Southern Bali and Lamongan Water Supply Projects.
Ports: Tanjung Priok in Jakarta, Teluk Lamong near Surabaya, Batu Ampar in Batam, Kuala Tanjung
International Hub in the Malacca Straits, Sorong West Pacific Hub Port the expansion of the Tanjung
Priok Port, Cilamaya in West Java and the Tanah Ampo Cruise Terminal at Kabupaten Karangasem
Bali).
Railways: the Manggarai-Soekarno Hatta Railway Track Project and the Central Kalimantan Coal
Railway Project).
Airports: the Kertajati Airport Project.
Toll Roads: the trans Sumatera Toll Network, comprising the Bakauheni-Palembang-Pekan and Baru-
Medan-Banda Aceh main routes as well as the Palembang-Bengkulu, Pekanbaru-Padang and Medan-
Sibolga sub-routes, as well as the 24 toll road projects in various regions and the Trans-Java toll road
project.

Subject to the National Mid Term Infrastructure Development Program the Government has allocated
Rp5,519.4 trillion to infrastructure with the allocation representing 40.1% of the 2014 Revised Budget, 9.9% of
the Regional Budget, 30.7% of the Public Sector budget, and 19.3% of Public state-owned-enterprise budget. The
program consists of various projects including the following: (i) 2,650 kilometers of roads; (ii) 1,000 kilometers
of toll roads; (iii) 46,770 kilometers of road maintenance; (iv) 15 new airports; (v) 20 airplanes;
(vi) 60 commercial and non-commercial ports in new locations; (vii) 3,258 kilometers of railways;
(viii) 21.4 million additional households having access to running water with a connection of
268,680 liter/second; (ix) broadband connections in all districts and cities; (x) public transportation in 29 cities;
(xi) public apartment leasing for 515,711 houses and stimulant support for 5.5 million houses and loan facilities
for 2.5 million houses; (xii) waste disposal system for 227 districts focusing on 430 cities; (xiii) maritime toll
roads including public and bulk cargo services, shipyard revitalization and ports; (xiv) 49 reservoirs and
33 hydropower generation units and three million hectares of irrigation systems; and (xv) two refineries
processing 300,000 barrels per day.

Transportation
Indonesia consists of 17,504 islands, and the transportation network relies more heavily on sea and air
transportation compared to most other countries of comparable size. In terms of land transportation, which
accounts for 92.0% and 84.0% of freight and passenger movement, respectively, as of December 2012, Indonesia
had approximately 493,940 kilometers of roads, consisting of approximately 38,245 kilometers of national roads,
approximately 53,642 kilometers of provincial roads, approximately 401,281 kilometers of municipal and city
roads, and approximately 772.2 kilometers of toll roads. Most road networks in and around major cities are
heavily congested, while many inter-urban and rural road networks are in poor condition and are in need of
repair. Public funds for road maintenance and construction are insufficient, and the Government is encouraging
private participation and investment in building toll roads, mostly in Java, Sumatera and Sulawesi. As of
December 31, 2012 Indonesia had 8,159 kilometers of railways of which 4,969 kilometers were in operation. As
of September 30, 2013, the land transportation system included 744 bus stations, serviced by 22,008 inter-
provincial buses and 17,647 tourist buses. In terms of sea transportation, as of December 2012, Indonesia had:
(i) 2,179 ports, 111 of which served as international ports to facilitate export-import cargo traffic; (ii) 214 inland
waterway transport routes with a total navigable length of 34,342 kilometers; and (iii) 175 ferry routes serviced

91
by 267 vessels consisting of 254 roll-on, roll-off transport vessels and 13 landing craft tanks. As of December
2013, Indonesia operated 237 airports, of which 29 were international airports. International flights into and out
of Indonesia are serviced by 54 international airlines, of which 48 are passenger airlines and six are for cargo.
The domestic market is serviced by 10 airlines, of which eight are passenger airlines and two are for cargo.
Polonia Airport was replaced by Kualanamu Airport which commenced operations in July 2013.

Currently, several toll road projects are being developed in Indonesia. The construction of the first phase of
the Jakarta Outer Ring Road Project was completed in 2013 and the second phase will be completed in 2015. An
additional segment, from Semarang to Ungaran, as part of the Semarang to Solo segment was completed in
March 2011 and commenced operation on November 10, 2011. The Government is continuing to prepare the
remaining segments of the Trans-Java Toll Road Project and completion of the project is targeted for 2016. The
ten model projects introduced at the IICE include two toll road projects and one transportation facility project.
The Solo-Kertosono Toll Road is planned to be 180.02 kilometers long and to cost approximately
U.S.$1,294.3 million, and the Government expects that 120 kilometers of the road will be constructed by the
private sector and 60.02 kilometers will be constructed by the Government. The Medan-Kualanamu-Tebing
Tinggi Toll Road in Sumatera is planned to be 60.8 kilometers long of which 17.8 kilometers of the toll road
(costing approximately U.S.$123 million) will be constructed by the Government (using a loan from The Export-
Import Bank of China) to support the development of the new Kualanamu Airport with the remaining
43 kilometers to be tendered for construction. To accelerate the implementation of this project, the local
government authorities have submitted a proposal for dividing the project into two phases. Under this proposal,
the first phase is expected to entail construction of 20 kilometers of road at a cost of U.S.$163 million. The
transportation facility included among the model projects is the expansion of the seaport at Teluk Lamong near
Surabaya, which is estimated to cost U.S.$179 million. As of November 2014, 17.6% of the Medan-Kuala
Namu-Tebing Tinggi toll road had been completed, with completion scheduled for 2016.

In addition, railway projects are expected to be developed in the provinces of Aceh, North Sumatera, West
Sumatera and South Sumatera, as well as in Java and several urban railways in Jakarta, Bandung, Yogyakarta,
Surabaya, Medan, Makasar and Manado. In 2008, construction began on the Aceh Railway Project and certain
segments of the Java Railway Project and is ongoing. The Government is also studying the feasibility of railway
projects in Kalimantan, Sulawesi and Papua and an elevated train and subway system in Jakarta. The new Medan
Airport commenced operations in July 2013. There are several railways strategic projects such as the
Construction of Java North Line Railway Double Tracking. The total length of the projects is 432 kilometers
connecting Cirebon-Semarang-Surabaya, with an estimated cost of Rp10 trillion, and the projects were fully
operational in August 2014. The Java South Line Railway is also being constructed, which includes: (A) Double
Tracking from Cirebon-Kroya consisting of 158 kilometers (which is further divided into three segments:
(i) connecting Cirebon-Larangan (57 kilometers) and Larangan-Prupuk (18 kilometers); (ii) connecting
Prupuk-Purwokerto (56 kilometers); and (iii) connecting Purwokerto-Kroya (28 kilometers)), (B) Double
Tracking from Kroya-Kutoarjo consisting of 76 kilometers and (C) Double Tracking from Solo-Surabaya
consisting of 253 kilometers.

Another strategic project is the construction of railway access to airports. One of the projects is the
construction of a railway line into Soekarno-Hatta International Airport. Two lines have been proposed, the
Express Line and the Commuter Line. The Express Line will be 33 kilometers long and will be financed through
a public private partnership (PPP) scheme. The estimated cost is approximately Rp23 trillion. The Commuter
Line will be built by state-owned entities. Railway development has opened up opportunities for private coal
railway development in: (i) Muara Enim to Tanjung Api-api (South Sumatera Province) which consists of
300 kilometers of rail; (ii) Tanjung Enim (South Sumatera Province) Pulau Baai (Bengkulu Province) which
consists of 310 kilometers of rail; (iii) Puruk Cahu-Bangkuang (Central Kalimantan Province) which consists of
290 kilometers of rail; and (iv) Muara Wahau-Lubuk Tutung (East Kalimantan Province) which consists of
120 kilometers of rail.

To reform and further develop the transportation sector and associated infrastructure and to improve the
legal framework for investors in the transportation sector, the Government has introduced various new laws and
regulations and is discussing additional regulatory improvements. These new laws and regulations include Law
Number 1 of 2009 on Aviation; Law Number 22 of 2009 on Traffic and Land Transportation; Law Number 23 of
2007 on Railway; Law Number 17 of 2008 on Shipping; Government Regulation No. 56 of 2009 on Railway
Operation, Government Regulation No. 61 of 2009 on Port and Government Regulation No. 20 of 2010 on Water
Transport, Government Regulation No. 22 of 2011 on Amendment to Government Regulation No. 20 of 2010 on
Water Transport, Government Regulation No. 32 of 2011 on Traffic Management and Engineering, Impact
Analysis and Demand Management, Government Regulation No. 37 of 2011 on Traffic and Transportation

92
Forum, Government Regulation No. 55 of 2012 on Vehicles, and Government Regulation No. 80 of 2012 on
Inspection Procedures of Motor Vehicle on the Roads and Enforcement of Traffic Violation and Transportation.
One focus of these reforms is to encourage private sector participation in the development of the transportation
sector by providing greater opportunities for private sector participants to invest in the development of roads,
inland waterways, ports, airports and railways. Another focus of the reforms is to improve safety standards
within the industry by ensuring that the Government in its capacity as industry regulator continues to work
closely with the operators and developers within the industry.

One of the recent reform initiatives involving the transport sector and associated infrastructure involves
minimizing traffic congestion in Jakarta. In connection with this, Presidential Regulation on the Transportation
Authority at Jabodetabek and Government Regulation on the Mandate of Law No. 22 of 2009 on Traffic and
Land Transportation are currently being prepared by the Coordinating Ministry for Economic Affairs and
Ministry of Law and Human Rights. Construction of the Jakarta Mass Rapid Transit (Phase One), connecting
Lebak Bulus to Bundaran Hotel Indonesia commenced on October 10, 2013. Phase One constitutes
approximately 15.7 kilometers out of a total of approximately 23.8 kilometers. The project is planned to come
into operation in 2018; two additional bus-way corridors have been developed; the construction of the remaining
sections of the tolled ring road circling the outer city of Jakarta, the Jakarta Outer Ring Road, has been
completed; a Master Plan Intelligence Traffic System at Jabodetabek is currently in the planning stages; and a
non-toll road flyover, the Antasari Blok M flyover, became operational at the end of 2012.

The National Road Safety Master Plan, introduced in July 2006, focuses on road safety. The plan target is to
reduce traffic accident fatality rates by 80.0% by 2035. This plan is based on a five-pillar approach to road safety,
which consists of road safety management, safe roads, safe vehicles, safe conduct on roads, and how to tend to
accident victims. On November 26, 2011, the Kutai Kartanegara Bridge across the Mahakam River at East
Kalimantan collapsed. On November 28, 2011, the Coordinating Ministry for Public Welfare released an official
statement stating that there were 10 fatalities and 33 others reported missing as a result of the accident. The
Coordinating Ministry for Public Welfare and the Ministry of Public Works, among others, investigated the
cause of the collapse and concluded that the bridge collapsed due to construction and maintenance oversights.

Moreover, in the railways sector, the Directorate General of Railways established the National Railways
Master Plan in April 2011, which covers, among other things, national railway planning until 2030. Under the
National Railways Master Plan, by 2030, the railway network is expected to cover 12,000 kilometers and achieve
passenger share of around 11.0%-13.0%, and freight transport share of around 15.0%-17.0%. In addition, the
plan provides for strategies to achieve its goals by 2030, such as strategies regarding railway network
development, increasing security and safety, technology transfer and industrial development, human resources
development, institutional development, investment and financing. The National Railways Master Plan is
expected to serve as a guideline for national railway development up to 2030 for national and local governments
as well as the private sector.

Electricity
Indonesia has gradually been opening electric power services to competition from the private sector. In
1990, the Government converted PLN from an agency with a social purpose to a limited liability company with a
profit motive. Private investment in power plants has been permitted since 1992. Growth in electricity
consumption averaged 8.0% per year between 2009 and 2012 and was 6.9% as of December 31, 2013, on a year-
on-year basis.

On September 23, 2009, the Republic enacted Law No. 30 of 2009 on Electricity, which reorganizes
electricity sector in the country and aims to adopt the principles of utility, efficiency and sustainability. This law
affirms that power supply business shall be controlled by the state and used in the best prosperity of the people
with its organization being conducted by the Government and the local governments. The Government and local
governments shall conduct power supply business, of which the implementation shall be undertaken by the state-
owned-enterprises and region-owned enterprises. To enhance the capability of the state in power supply
activities, this law gives opportunities to private enterprises, cooperatives and self-reliant communities to
participate in the power supply business. Power supply businesses are power generation, transmission,
distribution or electricity retailing which could be conducted in an integrated manner. The Government or local
governments shall within the autonomy principles issue power supply business licenses. This law also governs
about issuing of power supply business areas to other license holders aside from PLN, application of regional
tariffs applicable only for one certain business area, electrical grid utilization for telecommunications,
multimedia and informatics, as well as cross-border electricity trading.

93
 On September 23, 2002, Indonesia enacted Law No. 20 of 2002 on Electricity, which required significant
changes in the electricity sector. Under this law, open competition for power generation was to be introduced by
2007. The law brought an end to PLNs monopoly on electricity distribution within five years, after which time
private companies (both foreign and domestic) would be permitted to sell electricity directly to consumers.
However, all companies would need to use PLNs existing transmission network. In December 2004, the
Constitutional Court annulled the 2002 electricity law on the grounds that competition in the Indonesian
electricity industry contradicted Article 33 of the Constitution, which states that the Government should control
businesses affecting the lives of a majority of the Indonesian people. The Constitutional Court further held that:
(i) all contracts or permits that had been entered into or issued under the 2002 electricity law would remain valid
until their expiration; (ii) the previous electricity law of 1985 would be reinstated; and (iii) the Government
would need to prepare a new electricity law which was consistent with Article 33 of the Constitution. The
annulment of the 2002 electricity law did not affect existing independent power producers because they are
required to be connected to PLNs electricity grids. In light of these developments, on September 23, 2009, the
Republic enacted Law No. 30 of 2009 on Electricity. On December 8, 2009, a request for judicial review of this
new electricity law was once again filed with the Constitutional Court by PLNs labor union. On December 30,
2010, the Panel of Constitutional Court Judges rejected the request, ruling that:
a. The possession of relative majority power by the Government would remain to give the Government a
sounding vote in the making of the business entitys management decisions engaged in the power
generation business; and
b. Article 33 of the Constitution does not prohibit competition amongst business actors, so long as the
competition does not vitiate the states power to govern, manage, maintain and supervise the sectors of
production that are important for the country, affect the lives of the people and promote the prosperity
of the public.

Indonesia, as of September 30, 2014, had an installed electrical generating capacity of approximately
52.0 gigawatts, with approximately 5.2% coming from oil/gas steam, approximately 11.9% from diesel,
approximately 9.7% from hydro power, approximately 26.9% from gas, approximately 2.6% from geothermal
power, approximately 43.4% from coal-fired power plants and approximately 0.3% coming from renewable
energy mini-scale power plants. PLN owns approximately 71.1% of the installed capacity, IPP own
approximately 20.4% of the installed capacity, PPU own about 3.4% and Non-Oil IO own about 5.2%. The
electricity sector faces numerous challenges in its development, including: (i) a mismatch between the
availability of primary energy resources, which are located mostly outside Java and Bali, and demand for
electricity, which mostly comes from Java and Bali; (ii) the fact that oil constitutes a high percentage, being
11.8% of the fuel mix used for producing electric power, despite the abundance of coal resources within the
country; and (iii) the limited availability of government funds and other resources to finance the construction of
new power plants and transmission and distribution networks. In its infrastructure development initiatives, the
Government has placed special emphasis on the development of power generation plants, particularly coal-fired
power plants, in order to reduce dependence on oil for power generation. One of the Governments ten model
projects introduced at the IICE is a power generation project, the central Java coal-fired power plant. The
feasibility study of this project has been completed, and the pre-qualification stage for bids was completed in
November 2009. Seven bidders passed the pre-qualification process. In June 2011, PLN issued a determination
of the winner and a power plant agreement was signed on October 6, 2011. Recently, the Government issued
Presidential Regulation No. 78 of 2010 regarding Infrastructure Guarantee for Public Private Partnership Projects
through the Infrastructure Guarantee Agency. Pursuant to this, the Government will provide a guarantee for the
central Java coal-fired power plant. The central Java coal-fired power plant is divided into two units: the first unit
is expected to be operational in August 2018; and the second unit is expected to become operational six months
later. In October 2014, the Government introduced new regulations, among others, Government Regulation No
79 of 2014 to replace Presidential Regulation No. 5 of 2006 on National Energy Policy to encourage the
development of the energy sector, through various initiatives such as the search and the increase of fossil energy
reserves, the development of new energy and renewable energy, restoration of environmental function and
conservation of energy resources.

Additionally, the Government has instructed PLN to accelerate its construction of coal power plants with an
aggregate capacity of 10,000 MW and associated transmission lines, the total generation and transmission value
of which is estimated at U.S.$6.7 billion and for which the Government has pledged certain credit support. PLN
entered into construction contracts in relation to 34 power plants comprising the 10,000 MW power plants
program, and the Government expects construction of these plants to be completed by the end of October 2015.
As of September 30, 2014, the total generating capacity of the coal-fired power plants in 10,000 MW Phase 1
that have achieved their commercial operation date is approximately 7,368 MW (74.2% of the total project). In

94
addition, PLN is targeting a coal-fired power plant generating capacity of approximately 7,997 MW by the end of
2014. Since March 22, 2013, the Government has been a party to the service level agreement between PT PLN
and related stakeholders in the electricity industry in Indonesia, such as the Coordinating Ministry of Economics,
the Ministry of Finance, Ministry of Energy and Mineral Resources, the Ministry of State-Owned-Enterprises,
the Ministry of Transport, the Ministry of Forestry, the Ministry of Domestic Affairs, the Ministry of the
Environment, SKK Migas, BPH Migas and the National Land Agency. The purpose of this agreement is to
enhance the completion of electricity development in Indonesia and also forms part of the Government
Commitment to PT PLN, and is periodically supervised by UKP4 (Presidential Delivery Unit). The aggregate
value of the construction contracts is approximately U.S.$10 billion (assuming exchange rates of
U.S.$1 = Rp9,000 and 1 = Rp12,153.86). Higher levels of investment in power generation, transmission and
distribution lines and facilities will also be required to meet expected demand. The Government expects that
from 2013 through 2022 the electricity sector will require U.S.$91.32 billion in investment for the development
of additional generation capacity, U.S.$19.41 billion in investment for electricity transmission and
U.S.$14.49 billion in investment for electricity distribution.

On November 13, 2008, the Ministry of Energy and Mineral Resources introduced the National Electricity
General Plan 2008-2027 to coordinate infrastructure development for the various regions of Indonesia. Indonesia
will require additional power generation capacity of approximately 237,020 MW by 2031. Higher levels of
investment in power generation, transmission and distribution lines and facilities will also be required to meet
expected demand. The Government expects that from 2013 through 2022 the electricity sector will require
U.S.$91.32 billion in investment for development of additional generation capacity, U.S.$19.41 billion in
investment for electricity transmission and approximately U.S.$14.49 billion in investment for electricity
distribution.

Significant private sector investment required in the electricity sector is to be met through the Independent
Power Producer scheme through competitive biddings, direct appointments or appointments by selection. Direct
appointments are expected to be made on the basis of certain criteria, including, among other factors, the use of
renewable energy, marginal gas, mine-mouth coal or local energy, the sale of excess power, the condition of the
local power system and the possibility of expanding the existing power plants capacity.

However, electric power tariffs are politically sensitive, and current rates may be insufficient to generate
funds for the investment necessary for planned expansion of the electric power system. Many outer-island
regions already suffer intermittent power outages, and power shortages could become a serious problem on the
islands of Java and Bali as well.

The MEMR Regulation No. 22 of 2012 on the Obligation of PLN to Purchase Electricity from Geothermal
Power Plants and the Standard Purchase Price for Geothermal Power by PLN has been issued to replace MEMR
Regulation No. 2 of 2011 and to set out how PLN purchases geothermal power. This regulation aims to
accelerate the development of geothermal power as mandated by Government Regulation No. 59 of 2007 on
Geothermal Business Activities as amended by Government Regulation No. 70 of 2010, in particular the second-
phase geothermal development of 10,000 MW. The Regulation sets the purchase price for geothermal power at
10-18.5 U.S. cents/kWh depending on the region and the type of voltage transmission which connects the
geothermal power plants to the system. The price at which PLN will purchase geothermal power will be non-
negotiable. MEMR Regulation No. 17 of 2014 on the Obligation of PLN to Purchase Electricity from
Geothermal Power Plants and the Standard Purchase Price for Geothermal Power by PLN has been issued to
replace MEMR Regulation No. 22 of 2012 and to set out how PLN purchases geothermal power. The Regulation
sets the purchase price for geothermal power at 11.8-29.6 U.S. cents/kWh depending on the region and
commercial operation date of the project.

MEMR has also issued MEMR No.09/2014 as amended by MEMR No.19/2014 under which the Republic
have been gradually increasing the electricity power tariff for industry bimonthly since July 1, 2014. The new
tariff will be applicable to consumption of electricity power for social services, household/domestic purposes,
business and government buildings and public road lighting interests. By increasing the electricity power tariff,
the Republic aims to maintain the sustainability of electricity power supply, increase the quality of service to
consumers, improve the electrification ratio and promote a more focused electricity power subsidy.

Based on PLNs 2013-2022 Electricity Supply Business Plan (Rencana Usaha Penyediaan Tenaga Listrik
or RUPTL), the needs of national electricity grow at a rate of approximately 8.4% per year. To meet the demand
and to support the MP3EI program, the Government has planned to increase plant capacity by 59.51 gigawatts by
2022 or about 5,95 gigawatts per year on average. Considering that the demand for electricity in 2022 is still

95
expected to be concentrated in the Java-Bali and Sumatera electricity system, the biggest increase in plant
capacity will be in Java-Bali electricity system (31.46 gigawatts) and Sumatera (16.57 gigawatts).

The Government is working on six strategic policies for electricity sector development in Indonesia,
including: (i) increase of electrification ratio; (ii) increase of power plant capacity; (iii) expansion of electricity
transmission network; (iv) revitalization of electricity distribution; (v) improvement of the energy mix by
reducing oil utilization in power generation; and (vi) development of renewable energy (including hydro,
geothermal, solar and wind) development policy, which includes maximizing the use of geothermal power plants.

Telecommunication
Through the 1990s, the Indonesian telecom sector was dominated by Telkom as the sole operator for local
and domestic long-distance services and Indosat as the sole operator for international long-distance service. To
enable fair competition and a level playing field and to improve service quality, the Government ended the
monopoly era in basic telephony services through early termination of the exclusive rights of Telkom and
Indosat. The transition towards full competition was made in steps, with limited competition in the form of a
duopoly policy introduced for local service in 2002 and expanded to domestic long-distance and international
service in 2003. As of December 31, 2012, Telkom (including its corporate group, Telkomsel) and Indosat held
market shares of approximately 44.4% and 20.7%, respectively, in terms of number of mobile phone subscribers.

Fixed mobile services, also known as fixed wireless access, are wireless mobile services which are confined
by the service provider to a certain designated coverage area and do not provide for roaming services to areas
outside the designated coverage area. As of December 31, 2010, the number of mobile phone subscribers was
approximately 211.2 million, while the number of fixed mobile services subscribers was approximately 32
million. As of December 31, 2012, the number of mobile phone subscribers increased to approximately
282 million, while the number of fixed mobile services subscribers was approximately 30.3 million.
Telecommunications penetration is as follows as at December 31, 2012: (i) a fixed line penetration of 3.0%; (ii) a
fixed mobile services penetration of 12.0%; and (iii) a mobile service penetration of approximately 111.9%. The
trend in recent years is a declining use of land lines and increasing use of mobile services. To support
telecommunications penetration in the Republic, the Government has maintained a Universal Service Obligation
(USO) program since mid-2003. Originally funded by the national budget, Government Regulation No. 28 of
2005 on Tariff of Types of Non Tax State Revenue Applied in the Ministry of Communication and Information
was enacted on July 5, 2005 requiring the contribution of 0.75% of telecommunications operators gross income
to the USO program. In January 2009, the contribution of telecommunications operators gross income to the
USO program was increased to 1.25% by Government Regulation No. 7 of 2009 as amended by Government
Regulation No. 76 of 2010 (no change in percentage of contribution is stipulated). As of December 31, 2013,
33,184 villages were included in the USO program and gained access to telephone services while 5,956 cities
(kecamatan/subdistrict) gained access to internet services. To ensure the sustainability of this program, the
Government designed a program of service based contracts with multiyear funding. Under this program, regions
under the USO program have been divided into 11 regional blocks and the Government will select a development
agent for each area through a tender process.

On November 24, 2009, the Government entered into a procurement and installation contract to develop the
Palapa Ring Mataram-Kupang submarine cable system. PT Telkom completed the development of the submarine
transport backbone from Mataram to Kupang in November 2011, providing an initial capacity of 40 gigabytes.
The Palapa Ring Mataram-Kupang submarine cable system provides a network link between Mataram and
Kupang, connecting the islands of Lombok, Sumbawa, Sumba, Flores and Timor.

In July 2012, the Ministry of National Development Planning introduced the draft Indonesia Broadband
Plan (IBP) as part of the realization of the national development visions set forth in the Long-Term National
Development Plan 2005-2025.

The IBP consists of a policy document and an implementation plan. The policy document outlines
Indonesias current broadband ecosystem, the use of broadband as a strategy to improve Indonesias
competitiveness, and the policies and strategies for developing Indonesias broadband. The implementation plan
includes a detailed action plan for the broadband infrastructure project and its development. The draft IBP was
introduced for public comment, and collaboration between the Government and various stakeholders is on-going.
The final draft of the IBP was issued at the end of 2013. Over the period spanning 2013 to 2017, the main
infrastructure policies under IBP include developing the national broadband ecosystem and infrastructure,
increasing availability of national broadband access, reducing dependency on international systems and driving
content development.

96
Water
As measured using the national Indonesian statistical criteria in 2013, 67.7% of the Indonesian population
has access to adequate drinking water. Compared to 2012, the national access to adequate drinking water grew by
1.7% in 2013. This increase was fueled primarily by the improvement of the performance of Perusahaan Daerah
Air Minum (PDAM), a government-owned water company throughout the country and the implementation of a
community-based water supply and sanitation project (Pamsimas). In addition to this, in 2012 the National
Statistic Bureau improved the methodology used to calculate access to adequate water supply based on the
criteria prescribed by the MDGs. Indonesia is on course to achieve the MDGs target of giving 68.9% of its
population access to adequate drinking water services by 2015.

Sanitation conditions in Indonesia are relatively underdeveloped, which may affect the quality of surface
and groundwater. Improved sanitation coverage is still limited to approximately 59.7% of the Indonesian
population. Population growth is expected to put increasing pressure on the existing water supply and sanitation
systems and the Government aims to achieve a targeted 62.4% of accessible sanitation services by 2015.

The Government has undertaken programs and activities to improve access to clean water and sanitary
conditions and aims to meet the targets it has set by 2015. To overcome problems regarding clean water,
including relatively low investment, lack of comprehensive legislation, a low rate of community and private
sector involvement and low quality of management, the Government has issued policies designed to improve
service coverage, managerial quality and capacity for water services and to increase the involvement of
communities, private entities and international support agencies in the sector. Regulatory reform aims to improve
the investment climate and increase government accountability. Key regulations include Law No. 7 of 2004 on
Water Resources (Law 7/2004) and Government Regulation No. 16 of 2005 on Development of Drinking Water
Supply Systems and Presidential Regulation No. 56 of 2011 on Second Amendment to the Presidential
Regulation No. 67 of 2005 on Government Cooperation with Business Entities in the Provision of Infrastructure.
Presidential Regulation No. 67 of 2005 has been amended by Presidential Regulation No. 66 of 2013, which sets
forth the duration of cooperation to 12 months, extendable for a maximum of 12 additional months (subject to
certain terms and conditions).

As of November 2013, five water supply projects had been tendered through public-private partnership
schemes with a projected cost of approximately U.S.$410.4 million and two prospective water supply projects
were to be tendered through public-private partnership schemes with a projected costs of approximately
U.S.$238.8 million.

Law No. 7/2004 also provided the basis for reform in the management of water resources, including:
(i) conservation; (ii) utilization of water resources; (iii) water-related disaster management; (iv) strengthening
community participation in water resource management (including the roles of water user associations and
district governments) and providing a stronger legal basis for the role of the Government, the public, state-
owned-enterprises and the private sector in water resource management; and (v) developing an integrated
information system for water resource management.

In Indonesia, the management of water resources is regulated by Law No. 7/2004 and its implementation
regulations are: (i) Government Regulation No. 16 of 2005 on Development Drinking Water Supply Systems;
(ii) Government Regulation No. 20 of 2006 on Irrigation; (iii) Government Regulation No. 42 of 2008 on Water
Resources Management; (iv) Government Regulation No. 43 of 2008 on Ground Water; (v) Government
Regulation No. 37 of 2010 on Dams; (vi) Government Regulation No. 38 of 2011 on Rivers; and
(vii) Government Regulation No. 73 of 2013 on Swamps. Certain presidential regulations and decrees have also
been issued as the mandate of Law No. 7/2004 on Water Resources, including: (i) Presidential Regulation No. 12
of 2008 on National Council of Water Resources; (ii) Presidential Decree No. 26 of 2011 on Determination
Ground Water Basin; (iii) Presidential Regulation No. 33 of 2011 on National Policy on Water Resources
Management; (iv) Presidential Decree No. 12 of 2012 on the Determination of River Basins; and (v) Presidential
Regulation No. 88 of 2012 on Management Information Systems Policy of Hydrology, Hydrometerology, and
Hydrogeology at the National Level.

Aside from activities on water supply and sanitation, the Government of Indonesia has also developed an
irrigation network covering 7.2 million hectares in order to support the National Food Security Program. Due to
poor operation and maintenance, shortage of funds for rehabilitation and natural disasters, it was estimated in
2010 that approximately 52.0% (3.7 million hectares) of irrigation networks were in poor condition and in need
of urgent rehabilitiation.

97
Public-Private Partnership (PPP)
The Government has recognized the vital role of PPPs for the countrys future development and increasing
economic growth. The implementation of PPPs in infrastructure is stipulated by Presidential Regulation No. 67
of 2005, as most recently amended by Presidential Regulation No. 66 of 2013 on PPP in Infrastructure
Procurement. This regulation governs PPPs for the following specified infrastructure projects: airports, ports,
railways, roads, water conveyance for raw water, drinking water, waste water, solid waste, information and
communications technology, electricity, and oil and gas. Presidential Regulation No. 67 of 2005 provides a
robust and competitive legal and regulatory framework for PPPs from procurement of the PPP concessionaire
to the provision of government support and guarantees. The development of Indonesia PPPs in infrastructure was
supported in October 2013 by the Presidential Regulation No. 66 of 2013 on the third amendment to Presidential
Regulation No. 67 of 2005 on Government Cooperation with Business Entities in the Provision of Infrastructure.

To accelerate the implementation of PPPs in infrastructure, the Minister of Finance issued the Minister of
Finance Regulation No. 223/PMK.011/2012 regarding provision of feasibility support as part of construction cost
for PPP Project in Infrastructure Procurement called Viability Gap Fund (VGF) and Minister of Finance
Regulation No. 164/PMK.06/2014 regarding Procedure for the Use of State Assets in Infrastructure Provision.
VGF is a form of government support to increase the financial feasibility of PPP infrastructure projects. Some
infrastructure projects (including toll road and water supply projects) may need this facility.

As of November 30, 2014, a summary of PPP progress in Indonesia is as follows: 20 projects are being
tendered with a total investment of Rp100 trillion; 13 projects consisting of 12 toll roads and one water supply
project with a total investment of Rp26.5 trillion have become operational, one coal fired power plant with a total
investment of Rp40 trillion has reached financial close and ten toll road projects with a total investment of
Rp40.6 trillion are under construction.

98
Gross Savings and Investment
The following table sets forth Indonesias national savings and investments and the difference between them
in absolute amounts and as a percentage of GDP for the periods indicated.

National Savings and Investments

Year ended December 31,

Nine months
ended
September 30,
2009 2010 2011 2012P 2013P 2014

Government:
Savings (in trillions of
Rupiah) . . . . . . . . . . . . . . . . . . 101.2 129.8 140.4 117.1 109.6 N/A
Investment (in trillions of
Rupiah) . . . . . . . . . . . . . . . . . . 189.8 176.6 224.9 263.3 312.8* N/A
Surplus/(deficit) (in trillions of
Rupiah) . . . . . . . . . . . . . . . . . . (88.6) (46.8) (84.5) (146.1) (203.2) N/A
Private:
Savings (in trillions of
Rupiah) . . . . . . . . . . . . . . . . . . 1,753.7 1,981.9 2,247.1 2,387.4 2,462.8 N/A
Investment (in trillions of
Rupiah) . . . . . . . . . . . . . . . . . . 1,554.6 1,888.4 2,147.9 2,469.9 2,563.4 N/A
Surplus/(deficit) (in trillions of
Rupiah) . . . . . . . . . . . . . . . . . . 199.1 93.6 99.2 (82.5) (100.6) N/A
Total:
Savings (in trillions of
Rupiah) . . . . . . . . . . . . . . . . . . 1,854.4 2,111.7 2,387.6 2,504.6 2,572.4 729.47
Investment (in trillions of
Rupiah) . . . . . . . . . . . . . . . . . . 1,744.4 2,065.0 2,372.8 2,733.2 2,876.3 809.92
Surplus/(deficit) (in trillions of
Rupiah) . . . . . . . . . . . . . . . . . . 110.5 46.7 14.8 (228.6) (303.8) (80.45)
Government:
Savings (% of GDP) . . . . . . . . . . 1.8 2.1 1.9 1.4 1.2 N/A
Investment (% of GDP) . . . . . . . . 3.4 2.8 3.0 3.2 3.4 N/A
Surplus/(deficit) . . . . . . . . . . . . . . (1.6) (0.7) (1.1) (1.8) (2.2) N/A
Private:
Savings (% of GDP) . . . . . . . . . . 31.3 30.7 30.3 29.0 27.1 N/A
Investment (% of GDP) . . . . . . . . 27.7 29.3 28.9 30.0 28.2 N/A
Surplus/(deficit) . . . . . . . . . . . . . . 3.6 1.5 1.3 (1.0) (1.1) N/A
Total:
Savings (% of GDP) . . . . . . . . . . 33.1 32.8 32.2 30.4 28.3 27.84
Investment (% of GDP) . . . . . . . . 31.1 32.0 32.0 33.2 31.7 30.91
Surplus/(deficit) (% of GDP) . . . 2.0 0.7 0.2 (2.8) (3.3) (3.07)
GDP (in trillions of Rupiah) . . . . . . . . 5,606 6,447 7,423 8,242 9,084 2,619.87
Current account (in millions of U.S.
dollars) . . . . . . . . . . . . . . . . . . . . . . . 10,628 5,144 1,685 (24,418) (29,090) (6,836)
Average exchange rate (Rupiah per
U.S. dollar)(1) . . . . . . . . . . . . . . . . . . 10,380 9,080 8,768 9,358 10,445 11,770
GNP (in trillions of Rupiah) . . . . . . . . 5,410 6,255 7,215 7,848 8,803
Current account balance (% of
GDP) . . . . . . . . . . . . . . . . . . . . . . . . 2.0% 0.7% 0.2% (2.8)% (3.3)% (3.07)%
Source: Bank Indonesia
P Preliminary.
* Estimated data provided by Bank Indonesia based on actual results from January 1, 2013 to March 31, 2013 of Rp149.4 trillion and
estimated data from April 1, 2013 to December 31, 2013.
N/A As of 2014, the data designated N/A will no longer be made public by the Republic.

(1) Official average exchange rate for the relevant period published by Bank Indonesia in its quarterly or annual report.

99
 In the 30 years prior to the Asian financial crisis, investment and exports had been the primary sources of
economic growth. During that period, the investment-to-GDP ratio averaged around 25.0%. That ratio fell to near
20.0% after the crisis. In the years leading up to the Asian financial crisis, Indonesias gross domestic savings fell
short of investment by an average of approximately 2.0% to 3.0% of GDP. The savings-investment gap was
financed by foreign savings through net capital inflow. Declining investment and increasing net exports (declines
in imports exceeding declines in exports) led to surpluses of savings over investment in 2001 and 2002. This
continued surplus reflected limited domestic investment and continued transfer of national savings abroad (or net
capital outflow). The annualized total savings rate was, 33.1% of GDP for 2009, 32.8% of GDP for 2010, 32.2%
of GDP for 2011, 30.4% of GDP for 2012, 28.3% of GDP for 2013 and 27.8% of GDP for the third quarter of
2014.

In 2009, the savings-investment surplus increased to 2.0% of GDP. The private sector surplus increased to
3.6% of GDP due to an increase in private savings. The government sector recorded a deficit of 1.6% of GDP as
a result of higher government expenditure related to the general election in the first half of 2009.

In 2010, the savings-investment surplus decreased to 0.7% of GDP. The private sector surplus decreased to
1.5% of GDP primarily as a result of higher saving activities. The government sector recorded a lower deficit of
0.7% of GDP as a result of higher government savings due to limited expenditure absorption in 2010.

In 2011, the savings-investment surplus increased to 0.2% of GDP compared to 0.7% of GDP in 2010. The
private sector surplus decreased to 1.3% of GDP because private investment growth increased at a higher rate
than the growth in private savings. The government sector posted a deficit of 1.1% of GDP due to an increase in
government investment and expenditure related to fuel subsidies necessitated by the high international oil price
in the last quarter of 2011.

In 2012, the savings-investment account posted a deficit of 2.8% of GDP. The private sector recorded a
deficit of 1.0% of GDP due to high levels of private investment, while private savings have decreased compared
with the previous year due to the global economic slowdown which subdued the export sector of the economy.
The government sector posted a deficit of 1.8% of GDP, higher than the deficit in 2011, primarily due to larger
government expenditure mainly in subsidized fuel and government investment.

The total savings rate was 28.3% of GDP for 2013. However, in 2013, the savings investment deficit
increased to 3.3% of GDP, caused mainly by the deficit in the government sector. The deficit in the government
sector was due to both higher investment as well as lower savings. Higher investment in the government sector
was attributed primarily to increased capital spending in line with improvement in budget disbursement
procedures and improved coordination among ministries. With respect to saving, rising energy subsidies have
caused government spending to increase, thereby reducing savings. In the private sector, the savings
investment deficit rose slightly to 1.1% of GDP. In 2013, private savings also increased, but not as much as
private investment which remained particularly strong. This development was partly explained by the fuel price
increase, which in turn raised consumption spending and reduced the rate of savings.

In the third quarter of 2014, the savings-investment account posted a deficit of 3.1% of GDP. The total
savings rate was 27.8% of GDP, while the total investment rate was 30.9% of GDP.

Foreign Investment
In 1973, the Republic established the Indonesia Investment Coordinating Board (Badan Koordinasi
Penanaman Modal or BKPM) to accelerate economic growth by attracting foreign capital investment. BKPMs
main function is to implement the Governments objectives for investment in the country. To reflect its goal of
reducing unemployment and poverty, the Government plans to attract quality investments in seven business
sectors, which are export oriented industries, industries to substitute imports of capital goods and raw materials,
industries to substitute imports of consumer goods, downstream industries, industrial sectors with increasing
domestic consumption, infrastructure, and tourism and creative industries. To assist investors with their queries
regarding investment in Indonesia, BKPM formed the Investor Relation Unit in 2010.

FDI inflows to Asia in the first quarter of 2014 amounted to U.S.$57,423 million, which resulted in an
increase of 13.0% from last years FDI inflow during the first quarter of 2013 of U.S.$50,967 million. Between
2009 and 2014, Indonesia was ranked fifth most favorable Asian country for FDI.

100
 Indonesia is working to shift towards a value-added industrial economy in which low-cost labor is no longer
the primary focus. The Government faces several challenges, including the ability to attract investment to
downstream industries which add more value to the economy. Though certain issues still exist, such as
underdeveloped infrastructures the Government continues its comprehensive reform efforts to improve the
business climate, including by introducing more investor-friendly investment regulations.

In June 2006, the Republic and the Republic of Singapore signed the Framework Agreement on Economic
Cooperation to develop the islands of Batam, Bintan and Karimun, located in the Riau archipelago approximately
50 kilometers south of Singapore, into special economic zones. The development of the special economic zones
will be conducted by the Republic and the Republic of Singapore working together through two bodies, the Joint
Steering Committee and the Joint Working Group. The special economic zones are expected to develop a legal
infrastructure to promote investment, including reduced or eliminated taxes and streamlined regulatory and
immigration procedures. The investment incentives offered in the free trade zones include no import or export
tax and no VAT for all processing industries for export purposes. In 2007, the Government established Batam,
Bintan and Karimun as free trade zones. In 2009, the Government enacted Regulation No. 39 of 2009 on Special
Economic Zones (SEZ). The purposes of the SEZ provisions are to enhance investment activities, particularly
through the provision of economic zones with particular economic and strategic competencies; to maximize high-
return economic activities; to develop the local region; and to enhance economic zone development.

There were 67 economic zones proposed to the Government as SEZs. Currently, there are eight SEZs in
Indonesia:
a. Tanjung Lesung SEZ, Banten as a tourism zone. It was enacted by Government Regulation No. 26 of
2012.
b. Sei Mangkei, SEZ North Sumatera as industrial, logistic, and tourism zone. It was enacted by
Government Regulation No. 29 of 2012.
c. Palu SEZ, Centrla Sulawesi as industrial, logistic, and export-oriented industrialization zone. It was
enacted by Government Regulation No. 31 of 2014.
d. Bitung SEZ, North Sulawesi as industrial, logistic, and export-oriented industrialization zone. It was
enacted by Government Regulation No. 32 of 2014.
e. Morotai SEZ, North Maluku as industrial, logistic, export-oriented industrialization, and tourism zone.
It was enacted by Government Regulation No. 50 of 2014.
f. Tanjung Api Api SEZ, South Sumatera as industrial, logistic, export-oriented industrialization, and
energy zone. It was enacted by Government Regulation No. 51 of 2014.
g. Mandalika SEZ, West Nusa Tenggara as tourism zone. It was enacted by Government Regulatioin
No. 52 of 2014.
h. Maloy Batuta SEZ, East Kalimantan as industrial, logistic, and export-oriented industrialization zone.
It was enacted by Government Regulatioin No. 85 of 2014.

The ACIA was signed on February, 26 2009 in Cham-am, Thailand to focus on regional cooperation among
ASEAN countries and to implement the ASEAN Economic Community (AEC) in 2015. ACIA is a
comprehensive investment agreement covering four investment pillars which are protection, liberalization,
promotion and facilitation. The ACIA came into force on March 29, 2012 and was amended on August 26, 2014
in Nay Pye Taw, Myanmar. The ACIA amendments consist of the following points:
a. the updating and endorsement of the ACIA Reservation List by the AIA Council;
b. the enforcement of Reservation List Ratification for Brunei Darussalam, Indonesia, and Laos; and
c. rearranging the mechanism and timing to ratify the Reservation List.

Since June 2012, the Government has been reviewing its Bilateral Investment Treaties (BITs) between
Indonesia and partner countries, as instructed by the Vice President in order to ensure fair protection for both FDI
in Indonesia and for Indonesian investors overseas.

In April 2007, the New Investment Law No.25 of 2007 was enacted to replace and improve upon both the
1967 Foreign Investment Law (as amended by Law No. 11 of 1970) and the 1968 Domestic Investment Law (as
amended by Law No. 12 of 1970). The New Investment Law and related regulations unify Indonesias legal
framework for foreign investment. The most significant feature of the New Investment Law is that it provides

101
equal treatment for domestic and foreign investors, subject to limits for foreign participation in certain sectors of
the economy. The New Investment Law abolishes the requirement for gradual divestment by foreign investors
(formerly, there was a 30-year time limit for foreign investment) and grants investors certain new privileges,
including the right to appoint foreign management and the right of free repatriation of investment profits without
nationalization (unless otherwise provided by law) or expropriation. The New Investment Law prohibits
nationalization without indemnification at market value and provides for unrestricted repatriation by stating
owners should be compensated at the market value of assets, should they be seized or nationalized. Any disputes
in investment which arise between foreign investors and the Government may be settled through deliberation and
international arbitration if agreed upon between the parties.

Within the framework of Investment Law No.25 of 2007, the Government enacted a Negative Investment
List to provide a clearer and more detailed list of business activities that are conditionally open to foreign
investors and stakeholders, subject to the satisfaction of certain conditions relating to, among others, partnership
arrangements, capital ownership, location, qualification for special licenses or permits and small and medium-
sized enterprises.

The latest revision of the Negative Investment List was ratified on April 24, 2014 with the enactment of
Presidential Regulation No. 39 of 2014 on the List of Business Fields Closed to Investment and Business Fields
Open with Conditions to Investment. The purpose of the revision is to increase investment in Indonesia and to
implement Indonesias commitment to the AEC. By revising the Negative Investment List, the Government also
aims to: (i) prioritize the national interest and improve national competitiveness; (ii) maintain sustainable
economic development and anticipate the impact of a global economic slowdown by increasing both domestic
and foreign investment; and (iii) simplify investment regulations and provide legal certainty to investors. The
legal certainty is provided by Article 3 which asserts that business fields not listed in appendices one and two to
Article 1 and 2 of Presidential Regulation No.39 of 2014 are open to investment without conditions.

In this revision, 58 additional business sectors have been opened up to foreign direct investment, including:
(i) port facilities under PPP schemes (piers, buildings, container delay terminals, liquid bulk terminals, dry bulk
terminals, and Ro-Ro terminals); (ii) terminal construction; (iii) power plants under PPP schemes (power plants
greater than 10MW, electric power transmission and electricity distribution); (iv) the pharmaceutical industry;
and (v) advertising. In addition, there has been a reduction in the number of business sectors closed off to foreign
direct investment which primarily include those businesses producing goods/services that are: (a) prohibited by
Indonesian law; (b) dangerous; (c) polluting; and (d) strategically important for national security and/or heritage
reasons.

The list of business fields closed to investment includes, but is not limited to, captivity of endangered fish,
extraction of natural coral reefs to be used in construction materials, hazardous chemical industries, production
and manufacture of alcoholic beverages and gambling and casinos.

With the enactment of Presidential Regulation No. 39 of 2014, the former Presidential Regulation No. 77 of
2007 on the List of Business Fields Closed to Investment and Business Fields Open with Conditions to
Investment, as amended by Presidential Regulation No. 111 of 2007 on the Amendment to Presidential
Regulation No. 77 of 2007 on the List of Business Fields Closed to Investment and Business Fields Open with
Conditions to Investment, and Presidential Regulation No. 36 of 2010 on the List of Business Fields Closed to
Investment and Business Fields Open with Conditions to Investment, were revoked and are no longer applicable.

The New Investment Law provides certain tax incentives such as income tax deductions and certain
deductions or exemptions with respect to import duties and value added tax on purchases of capital goods and
raw materials. These tax incentives are granted in accordance with prevailing tax laws and regulations.
Companies income tax holidays or reductions within certain amounts and periods may only be granted to a new
investment in a pioneer industry, namely an industry with wide-ranging links that give added value, promotes
new technology, and possesses strategic values for the national economy.

One fiscal incentive provided by the Government is a tax allowance which is regulated by the Government
Regulation No. 1 of 2007, as amended by Government Regulation No. 52 of 2011 on Second Amendment to the
Government Regulation No. 1 of 2007 on Income Tax Facility For Investment in certain Business Fields and/or
Certain Regions. This amendment increases the number of business fields and regions that are entitled to the tax
allowance. The incentive provides: (i) a 30.0% net tax deduction of total investment within a period of six years
at a rate of 5.0% annually; (ii) an accelerated depreciation and amortization of assets; (iii) a reduction in the tax
rate on dividend payments to non-residents to 10.0% (or a lower rate if so provided by a tax treaty) from 20.0%;
and (iv) an extension of loss carry-forward from five years to a maximum of ten years. In order to attract more

102
foreign direct investment, the Government enacted Government Regulation No. 94 of 2010 on Taxable Income
Calculation and Payment of Income Tax in Current Year (GR No. 94/2010), which provides an exemption from
or reduction of corporate income tax for corporate taxpayers that are newly established or established in
Indonesia not more than 12 months before August 15, 2011 and investing in industries that are deemed as pioneer
industries. According to Minister of Finance Regulation No. 130/PMK.011/2011 on the Provision of Corporate
Income Tax Exemption or Reduction (MOF No. 130/2011) as amended by Minister of Finance Regulation
No. 192/PMK.011/2014 on Amendment to the Minister of Finance Regulation No. 130/PMK.011/2011 on the
Provision of Corporate Income Tax Exemption or Reduction (MOF No. 192/2014) issued on October 6, 2014,
which further regulates GR No. 94/2010, pioneer industries include basic metal industries, oil refinery and/or oil
and gas sourced basic organic chemical industries, machinery, renewable resources industries, and/or
communication equipment industries. Under MOF No. 130/2011, any company investing in a pioneer industry
will be entitled to an exemption from corporate income tax for a minimum of five years and a maximum of ten
years. Further, following the ten-year exemption from corporate income tax, such company will also be granted a
50.0% income tax reduction for a period of two years.

MOF No.192/2014 further clarifies that proposals on corporate tax income exemption or holiday shall be
submitted by the relevant company to the Ministry of Industry or BKPM no later than August 15, 2015. MOF
No.130/2011 and its amendment shall remain applicable to any submission of a proposal on corporate tax income
exemption or holiday made between August 15, 2014 until August 15, 2015.

The Government also enacted Minister of Finance Regulation No. 76/PMK.011/2012 on Exemption of
Import Duties on Machinery as well as Goods and Materials for Industrial Construction Development in the
Framework of Investment (which changes and adds provisions in Minister of Finance Regulation
No. 176/PMK.011/2009). The incentive provides an exemption of import duty on certain machinery, goods and
materials for business activities in manufacturing industries and service industries. To become eligible for the
exemption, the machinery, goods or materials must be the type of machinery, goods or materials that: (i) are not
in production in Indonesia; and (ii) have been produced in Indonesia, but have not fulfilled the required
specifications; or (iii) have been produced in Indonesia, but in an insufficient amount. This regulation sets out the
types of investments that qualify for exemption from import duties for a period ranging from two to four years in
relation to the purchase of machineries and materials in accordance with certain requirements. The industry
sectors that benefit from this regulation include the manufacturing industry, service industries related to tourism
and culture, public transportation, public health, mining, construction and the telecommunications sectors.

In addition to tax incentives, the New Investment Law also simplifies procedures and permits investment
companies to obtain and extend, among others, land titles in advance. In 2008, however, the provision was struck
down by the Constitutional Court. As a result, investment companies will need to apply for an extension when
the first land title expires.

In the framework of Presidential Regulation No. 28 of 2008 on National Industry Policy, the Government
will provide investment facilities for high priority industries, pioneer industries, industries located in remote
areas, industries which conduct research and development, industries that develop infrastructure, industries that
conduct partnerships with small and medium-sized enterprises and cooperatives, industries that use local content
and industries which involve the transfer of technology, industries which involve the preservation of the
environment and industries which are labor intensive. These investment facilities include fiscal and non-fiscal
incentives and other facilities.

In June 2009, to improve the processing of licenses and non-licenses relating to investments, the
Government enacted the Presidential Regulation No. 27 of 2009, which was revised on September 18, 2014 with
the enactment of Presidential Regulation No. 97 of 2014 on One Stop Integrated Services for investment (OSSI).
The OSSI is established and implemented in the central and local government and is supported by Electronic
System of Information Services and Investment Licensing and the Indonesian National Single Window (INSW)
which was launched in 2010 and offers investors an expeditious registration system, reduces the time to set up a
business in Indonesia and simplifies the process of obtaining various permits from relevant ministries.

In addition, the Government Regulation No. 45 of 2008 on Guidance for Regional Incentives and
Investment Facilities has encouraged local governments to give local incentives such as exemption, deductions or
reductions of local tax or free of other local government fees and charges, a stimulant grant or capital. There are
also local investment facilities such as the provision of data and information of investment opportunities,
infrastructure, land and location, technical assistance and the expedition of local licenses and permits. Domestic
investments may be processed directly in the regional offices while foreign direct investment will continue to be
processed in Jakarta.

103
 The Government has enacted the Indonesia Investment Guidelines (the RUPM) through Presidential
Regulation No. 16 of 2012 dated February 7, 2012, which sets out a long-term investment plan for Indonesia and
is valid until 2025. The RUPM provides guidance for the Ministry/Non-ministral Government (LPNK),
Provincial Government and District/City Government in formulating policies relating to investment activities.
The guidelines set out seven investment policy directives, which are: (i) to improve the climate for investment in
Indonesia, (ii) to encourage the distribution of investment, (iii) to increase focus on food, infrastructure and
energy, (iv) to support sustainable investment (Green Investment), (v) to empower of micro, small, and medium
enterprises, and cooperatives (UMKMK), (vi) to provide facilities to aid investment incentives, and (vii) to
promote investments. According to Article 4 Paragraph 1 and 2 of the Presidential Decree No. 16 of 2012,
provincial governments are to use the RUPM and potential provincial development priority as guidance when
formulating Provincial Investment General Plans (RUPMP). District/city government formulates the district/city
investment general plan (RUPMK) by referring to the RUPM, the RUPMP as well as potential district
development priority. As a guideline, BKPM issued the Chairman of BKPMs Regulation No. 9 of 2012 on
Guidelines to Formulate Provincial Investment General Plan and District/City Investment General Plan to
develop coherence and consistency in the direction taken by RUPM, RUPMP, and RUPMK in relation to
investment planning.

As of September 2014, 23 regions had ratified RUPMP and RUPMK consisting of:
1) nine provinces: Sulawesi Tenggara, Aceh, Jawa Tengah, Jawa Barat, Sumatera Barat, Sumatera
Selatan, Kalimantan Timur, DI Yogyakarta, and Jawa Timur; and
2) 14 districts: Kabupaten Kebumen, Kabupaten Wonogiri, Kota Bukittinggi, Kabupaten Brebes,
Kabupaten Cilacap, Kabupaten Demak, Kabupaten Kendal, Kabupaten Pekalongan, Kabupaten
Semarang, Kabupaten Tegal, Kabupaten Wonosobo, Kota Pekalongan, Kota Semarang, and Kota Bau-
Bau.

In addition, the Minimum Service Standards have been implemented in several regions, as follows:
1) seven provinces: Jawa Timur, Sulawesi Barat, Sumatera Utara, Bengkulu, Nusa Tenggara Barat, DI
Yogyakarata, andKalimantan Timur;
2) 10 districts: Lamongan, Kebumen, Muko-muko, Rejang Lebong, Kepahiang, Seluma, Bengkulu Utara,
Bengkulu Tengah, Batang, and Siak; and
3) four cities: Yogyakarta, Salatiga, Palu, and Bengkulu.

The chairman of BKPM has enacted the Chairman of BKPMs Regulation No. 14 of 2011 in relation to the
Minimum Service Standards (SPM) in the Investment Sector in Provinces and Districts/Cities, dated
December 28, 2011, to facilitate the creation of a competent authority aimed at introducing time limits to comply
with the SPMs in investments in the provinces, districts and cities. As a guideline, BKPM issued the Chairman of
BKPMs Regulation No. 10 of 2012 on Guidelines to Formulate the Minimum Service Standards on the
Investment Sector in Provinces and Districts/Cities. The Government intends to push the development of
investment activities in food (seed, fertilizer and estate crops), energy (fossil fuels and geothermal) and
infrastructure (cement, steel, air and sea transports, toll roads, bridges, railways and utilities) projects throughout
Indonesia. To expedite the infrastructure development, the Government has enacted Presidential Regulation
No. 67 of 2005 on Government Cooperation with Business Entities in the Provision of Infrastructure, as last
amended by Presidential Regulation No. 66 of 2013 on the Third Amendment to Presidential Regulation No. 67
of 2005, or commonly known as public private partnerships. Public private partnerships will have the full support
of the Government and guarantees such as fiscal facilities, financial support, compensation, and other incentives.
In 2012, to accelerate infrastructure development, the Government enacted Law 2/2012 and Presidential
Regulation No. 71/2012 as lastly amended by Presidential Regulation No. 99 of 2014.

104
Foreign Investment in Indonesia
Foreign investment in Indonesia is divided into direct investments, portfolio investments and other
investments, and information about these types of investments is included in the Republics reports on its balance
of payments.

Foreign Investment in Indonesia

Nine months ended

Year ended December 31, September 30,
2009(1) 2010 2011 2012 2013P 2014P
(in millions of U.S. Dollars)
Direct Investments
Equity Capital . . . . . . . . . . . . . . . . . . . . . . 4,982 12,447 16,278 18,615 19,955 16,190
Debt instrument . . . . . . . . . . . . . . . . . . . . . (104) 2,845 4,287 2,586 3,389 3,029
Total direct investments . . . . . . . . . . . 4,877 15,292 20,565 21,201 23,344 19,219
Portfolio investments:
Equity securities . . . . . . . . . . . . . . . . . . . . . 787 2,132 (326) 1,698 (1,827) 3,722
Debt securities . . . . . . . . . . . . . . . . . . . . . . 9,693 13,582 5,322 12,976 14,000 19,614
Total portfolio investments . . . . . . . . 10,480 15,713 4,996 14,673 12,173 23,336
Financial derivatives . . . . . . . . . . . . . . . . . . . . . N/A (1,222) (458) (320) (679) (335)
Other investments . . . . . . . . . . . . . . . . . . . . . . . 3,794 3,987 4,954 7,275 2,595 4,782
Total foreign investment . . . . . . . . . . 19,152 33,770 30,057 42,829 37,432 47,003

Source: Bank Indonesia

P Preliminary.
N/A Not available

(1) Data based on BPM5.

Foreign Direct Investment

The Asian financial crisis in Indonesia was accompanied by unstable socio-political conditions that
substantially reduced FDI in the following years. FDI includes equity investment (either green field or cross-
border mergers or acquisitions) and debt extended by FDI investors (headquarters or affiliated companies) to
their Indonesian affiliates. The following table sets out the amounts of foreign direct investments in Indonesia by
non-residents.

Foreign Direct Investments

Nine months ended

Year ended December 31, September 30,
2009(1) 2010 2011 2012P 2013P 2014P
(in millions of U.S. dollars)
Equity capital(2) . . . . . . . . . . . . . . . . . . . . . . . 4,982 12,447 16,278 18,615 19,955 16,190
Debt instruments:
Inflow . . . . . . . . . . . . . . . . . . . . . . . . . . 8,536 16,424 53,677 60,871 65,690 56,877
Outflow . . . . . . . . . . . . . . . . . . . . . . . . . (8,640) (13,579) (49,390) (58,284) (62,301) (53,848)
Total debt instruments . . . . . . . . . . (104) 2,845 4,287 2,586 3,389 3,029
Total direct investments . . . . . . . . 4,877 15,292 20,565 21,201 23,344 19,219
Memorandum:
Direct investment in Indonesia(1) . . . . . . . . . . 4,877 13,771 19,241 19,138 18,884 16,953

Source: Bank Indonesia

P Preliminary.
(1) Data based on BPM5.
(2) Includes privatization and banking restructuring.

The Government believes that there are no significant domestic legal or regulatory obstacles in attracting
foreign investment into Indonesia. There are no significant restrictions on foreign ownership of equity shares,
except in industries related to natural resources, and foreigners are allowed to own 95.0% to 100.0% of the equity

105
of most categories of corporations. The Government currently aims to attract investment in processing industries
that will increase the value added to existing resources such as oil and gas, palm oil, copper, tin, gold, bauxite
and other mineral resources, rubber, cocoa and other agriculture resources.

Indonesias FDI has increased in the last few years, primarily as a result of increases in FDI in the non-oil
and gas sector, including mergers and acquisitions of domestic companies and increases in loan disbursements.
Net FDI inflow was U.S.$4.9 billion in 2009. In 2010, FDI increased substantially, posting a surplus of
U.S.$15.3 billion, and increased further to U.S.$20.6 billion in 2011. FDI was still robust and charted net inflows
of U.S.$21.2 billion in 2012, U.S.$23.3 billion in 2013 and U.S.$19.2 billion in the first nine months of 2014.

In 2009, net FDI recorded a surplus of U.S.$4.9 billion (including U.S.$1.6 billion in investments in the oil
and gas sector), which was lower than the U.S.$9.3 billion surplus in 2008. This smaller net inflow of FDI,
especially in the non-oil and gas sector, was related to the negative impact of global economic recession on
domestic investment. A substantial amount of FDI is received by export-oriented companies and Indonesias
exports were adversely affected by global economic conditions. In the non-oil and gas sector, more than 50.0%
of net FDI inflows in 2009 were accounted for by the manufacturing and mining and quarrying sectors.
Disbursements in 2009 increased to U.S.$8.5 billion compared to U.S.$7.8 billion in 2008. Debt repayments
increased to U.S.$8.6 billion in 2009 compared to U.S.$7.6 billion in 2008.

In 2010, net FDI posted a significant surplus of U.S.$15.3 billion (including a U.S.$1.7 billion investment in
the oil and gas sector), which was higher than U.S.$4.9 billion surplus in 2009. The more conducive investment
climate and stable macroeconomic conditions spurred FDI inflows, especially in the non-oil and gas sectors. In
2010, investment from Japan and Asian emerging markets were the main contributors to the larger inflows of net
FDI in Indonesia.

In 2011, net FDI recorded a surplus of U.S.$20.6 billion compared to a surplus of U.S.$15.3 billion in 2010.
The increase of net FDI inflows was primarily attributable to a more conducive investment climate and favorable
macroeconomic conditions. The increased level of FDI inflows caused the structure of capital inflows into the
balance of payments to be more weighted to long-term capital, resulting in a more sustainable structure of capital
inflows. The investment contributing to the increase of FDI inflows was mainly from European Union countries,
Singapore and Japan, and flowed mainly into the manufacturing and mining sectors of the Republic.

In 2012, net FDI recorded a higher surplus of U.S.$21.2 billion compared to a surplus of U.S.$20.6 billion
in 2011. The nominal increase of net FDI inflows was in line with strong domestic investment in a stable
economic environment. Continued resilience of the Indonesian economy and Indonesias economic outlook
resulted in net FDI inflows representing the largest component in the structure of capital inflows. During this
period, a majority of FDI inflows continued to occur in the manufacturing, mining, transportation and
telecommunication sectors. Most FDI inflows originated from Singapore, Japan, and the United States of
America.

In 2013, adverse global and domestic factors impacted the level of FDI in Indonesia, particularly FDI in
non-oil & gas sectors. Net FDI in non-oil & gas sectors slipped from US$22.0 billion in 2012 to US$21.0 billion.
Transactions by domestic investors taking up foreign-held shares in Indonesia-based retail companies and the
Governments acquisition of PT Indonesia Asahan Alumunium also contributed to the reduction in FDI in
Indonesia. Even with the acquisition of foreign investors subsidiaries holding participating interests in
Indonesian offshore blocks by state-owned-enterprises, FDI in the oil & gas sector registered a net inflow of
U.S.$2.3 billion compared to a net outflow of U.S.$0.8 billion in 2012. As a consequence, total FDI in Indonesia
increased from U.S.$21.2 billion in 2012 to U.S.$23.3 billion in 2013. The majority of net FDI inflows were
from Singapore, Japan, the United Kingdom, the United States and South Korea. The main contributions to FDI
inflows came from investments in the manufacturing, mining and transportation sectors.

During the nine months ended September 30, 2014, net FDI inflows remained robust in line with the
increase in DDI. FDI was U.S.$19.2 billion, which was higher than the corresponding period in 2013 during
which the FDI was U.S.$18.1 billion. Manufacturing, agriculture and mining sectors were the main contributing
sectors to the FDI surplus being generated for the first nine months of 2014. The majority of net FDI inflows
were from Singapore, Japan and China during this period. Net direct investment, which represents the difference
between direct investment liabilities of Indonesia to foreign investors and direct investment assets of Indonesian
investors, recorded a net inflow of U.S.$2.6 billion in 2009, a net inflow of U.S.$11.1 billion in 2010, a net
inflow of U.S.$11.5 billion in 2011, a net inflow of U.S.$13.7 billion in 2012, and a net inflow of U.S.$12.2
billion in 2013. During the nine months ended September 30, 2014, there was a net inflow of U.S.$11.9 billion.

106
 In line with worsening global economic conditions, direct investment outside Indonesia by Indonesian
investors in 2009 declined from a net outflow of U.S.$5.9 billion in 2008 to a net outflow of U.S.$2.2 billion in
2009. In 2010, global financial conditions broadly improved, but uncertainties as to the speed of recovery in
major economies remained, causing the net direct investment assets to increase to U.S.$4.2 billion in 2010. In
2011, direct investment assets increased to U.S.$9.0 billion. This trend was partly linked to a share exchange
transaction between domestic listed companies and foreign publicly listed companies. In 2012, direct investment
assets decreased to U.S.$7.5 billion, due to lower equity investment as well as net lending from parent companies
in Indonesia to their overseas subsidiaries. In 2013, Indonesian direct investment assets increased to U.S.$11.1
billion, primarily due to the acquisition of overseas oil and gas fields by Indonesian companies. During the nine
months ended September 30, 2014, direct investment assets charted a net outflow of U.S.$7.3 billion, which was
an increase from U.S.$6.0 billion as compared to the corresponding period in 2013 . See Foreign Trade and
Balance of Payments Balance of Payments.

Foreign Portfolio Investment

The following table sets out the amounts of foreign portfolio investments in Indonesia by non-residents.

Foreign Portfolio Investments

Nine months ended

Year ended December 31, September 30,
2009(1) 2010 2011 2012 2013P 2014P
(in millions of U.S. dollars)
Equity securities:
Inflows . . . . . . . . . . . . . . . . . . . . . . . . . 12,274 20,995 30,419 51,527 61,669 39,086
(Outflows) . . . . . . . . . . . . . . . . . . . . . . (11,487) (18,863) (30,745) (49,829) (63,496) (35,364)
Net equity securities . . . . . . . . . . . . . . . . . . 787 2,132 (326) 1,698 (1,827) 3,722
Debt securities (net) . . . . . . . . . . . . . . . . . . 9,693 13,582 5,322 12,976 14,000 19,614
Total portfolio investments . . . . . 10,480 15,713 4,996 14,673 12,173 23,336

Source: Bank Indonesia

P Preliminary.
(1) Data based on BPM5.

The oversupply of global liquidity, strong economic growth of Indonesia and investor perceptions of
emerging markets produced a surge in portfolio investments inflows in 2009 and 2010. In 2009 and 2010
Indonesias foreign portfolio investment (FPI) recorded a net inflow of U.S.$10.5 billion and U.S.$15.7 billion,
respectively, before decreasing to U.S.$5.0 billion in 2011. In 2012 FPI net inflows increased to U.S.$14.7
billion, triggered by strong and stable economic conditions and an increase in investor interest in emerging
markets, including Indonesia. The FPI net inflows were U.S.$12.2 billion and U.S.$23.3 billion in 2013 and for
the nine months ended September 30, 2014, respectively.

The steady improvement in domestic macroeconomic conditions combined with attractive interest rates on
Rupiah-denominated instruments bolstered even higher portfolio capital inflows in 2010 of U.S.$15.7 billion. FPI
inflows in 2010 were dominated by Rupiah denominated bonds, particularly after Bank Indonesia imposed a one-
month minimum holding period (which was later extended to six months) for SBI holders and started to issue
longer tenors for SBIs (six and nine months).

In 2011, net FPI flows recorded a surplus of U.S.$5.0 billion, lower than the U.S.$15.7 billion surplus
recorded in 2010. The decrease in net foreign portfolio investment flows was due to significant outflows of
capital during the second half of 2011 as foreign investors reduced their holdings of domestic stock and
government securities. Net FPI experienced a decline as a result of global turmoil and rising negative sentiment
in the global financial markets. The decline in net foreign portfolio investment originated from redemption of
Rupiah denominated assets held by foreign investors.

In 2012, FPI posted a net inflow of U.S.$14.7 billion, a significant increase from the U.S.$5.0 billion
inflows one year earlier. These rapid inflows were mainly due to foreign investment in government and corporate
bonds and domestic stocks. The Government believes that the buoyant condition of Indonesias economy and its
attractive yields compared to other countries in the region were the key factors driving such inflows. Issuances of

107
government bonds and private corporate bonds denominated in foreign currencies succeeded in generating added
inflows of foreign investment during 2012. Inflows of foreign capital in Indonesia were also driven by the
launching of economic stimulus policies in several advanced nations.

In 2013, foreign capital inflows in the form of portfolio investment fell sharply from the previous year. FPI
was recorded at U.S.$12.2 billion, down from the 2012 level of U.S.$14.7 billion. A steep decline of capital
inflows occurred mainly in the third and fourth quarters of 2013. This was due to global uncertainty related to
tapering of the monetary stimulus in the United States, negative perceptions of foreign investors concerning the
current account deficit in Indonesia and a surge in inflation expectations following the fuel-subsidized price hike.
The downturn in FPI in Indonesia in 2013 was mainly due to the private sector, particularly the stock market. In
contrast to the private sector, FPI in the public sector recorded a surplus. The surplus resulted from issuances of
government global bonds in the form of Global Medium Term Notes (GMTN) and the Sharia-compliant Sukuk
instruments, with the remainder being from high net placements by foreigners in Rupiah-denominated Indonesian
government bonds. The public sector surplus was further reinforced by foreign inflows into Bank Indonesia
Certificates (SBIs) after the change in the minimum holding period policy, which was reduced from six months
to one month effective from September 2013.

In the nine months ended September 30, 2014, the net inflow of FPI recorded a U.S.$23.3 billion surplus,
significantly higher than U.S.$10.6 billion surplus in the corresponding period in 2013. The increased inflow of
FPI was driven by an increase in net foreign buying in rupiah-denominated portfolio instruments, particularly
Indonesian government bonds and stocks. In addition, the surplus was also supported by the Governments
issuance of foreign currency bonds as a source of fiscal financing.

Net portfolio investment, which represents the difference between portfolio investment in Indonesia by
foreign investors and portfolio investment abroad by Indonesian investors, recorded net inflows of U.S.$10.3
billion in 2009, U.S.$13.2 billion in 2010, U.S.$3.8 billion in 2011, U.S.$9.2 billion in 2012 and U.S.$10.9
billion in 2013. During the nine months ended September 30, 2014, net portfolio investment recorded net inflows
of U.S.$24.1 billion. Meanwhile, portfolio investments abroad by Indonesian investors recorded net outflows of
U.S.$144 million in 2009, U.S.$2.5 billion in 2010, U.S.$1.2 billion in 2011, U.S.$5.5 billion in 2012 and
U.S.$1.3 billion in 2013. During the nine months ended September 30, 2014, portfolio investment abroad had a
net inflow of U.S.$0.8 billion. See Foreign Trade and Balance of Payments Balance of Payments.

Other Foreign Investment

The following table sets out the amounts of other investments (other than portfolio or foreign direct
investments) in Indonesia by non-residents, mainly consisting of loans received and paid.

Other Foreign Investments

Nine months ended

Year ended December 31, September 30,
2009(1) 2010 2011 2012 2013P 2014P
(in millions of U.S. dollars)
Loans
Bank sector:
Disbursements . . . . . . . . . . . . . . . . . . . 2,214 1,935 3,724 2,836 5,735 5,425
Debt repayments . . . . . . . . . . . . . . . . . . (1,561) (2,494) (1,803) (2,440) (4,051) (4,706)
Total bank sector . . . . . . . . . . . . . 653 (559) 1,920 396 1,684 719
Corporate sector:
Disbursements . . . . . . . . . . . . . . . . . . . 11,263 11,495 22,519 31,360 26,120 19,902
Debt repayments . . . . . . . . . . . . . . . . . . (8,848) (10,570) (19,197) (28,358) (25,228) (16,938)
Total corporate sector . . . . . . . . . . 2,415 925 3,321 3,001 892 2,964
Other (net)(2) . . . . . . . . . . . . . . . . . . . . . . . . . 726 3,621 (288) 3,878 19 1,100
Total other investments . . . . . . . . 3,794 3,987 4,954 7,275 2,595 4,782

Source: Bank Indonesia

P Preliminary.
(1) Data based on BPM5.
(2) Consists of loans of public sector and trade credit, currency & deposits, and other liabilities of private sector and public sector.

108
 In recent years, disbursements of banking and corporate loans have increased significantly as a result of
better access to international markets along with increased market confidence in the Indonesian economy.

In 2009, other investments recorded a net inflow of U.S.$3.8 billion as improvement in investor confidence,
an increase in global liquidity, and relatively low foreign interest rates encouraged greater foreign borrowing by
the private sector. Other investments also benefited from an additional allocation of SDRs from the IMF
amounting to U.S.$2.7 billion intended to bolster the reserve assets of IMF member countries, including
Indonesia, as part of the efforts to resolve the global economic crisis.

Foreign other investments posted a net inflow of U.S.$4.0 billion in 2010, higher than a net inflow of
U.S.$3.8 billion in 2009. The surplus in foreign other investment in 2010 resulted largely from the significant
surplus of non-resident deposits in domestic banks amounting to U.S.$1.6 billion compared to the deficit of
U.S.$767 million in 2009.

In 2011, foreign other investments posted a net inflow of U.S.$5.0 billion compared to a net inflow of
U.S.$4.0 billion in 2010. This upturn primarily resulted from an increased withdrawal of foreign debts by
corporations in order to meet their capital needs. Meanwhile, the government debts showed a net outflow, in line
with the Governments plan to reduce foreign loans.

In 2012, foreign other investment recorded a net inflow of U.S.$7.3 billion. The surplus was mainly
attributable to the increase in other investment liabilities in the public sector. Although there was an increase in
debt repayment in the private sector, withdrawals surpassed the level of repayment.

Global and domestic economic developments impacted foreign capital inflows leading to a downturn in
other investments in Indonesia. Foreign other investments in Indonesia fell significantly from a surplus of
U.S.$7.3 billion in 2012 to U.S.$2.6 billion in 2013. Foreign other investment in the public sector contributed
mostly to the reduced surplus in other investment in Indonesia. Meanwhile, foreign other investment in the
private sector posted a surplus bolstered by net disbursement of non-affiliated foreign borrowing and expansion
of non-resident deposits held in domestic banks.

In the nine months ended September 30, 2014, foreign other investment in Indonesia registered a
U.S.$4.8 billion surplus, a reversal from the U.S.$2.1 billion deficit in the corresponding period in 2013. The
surplus was mainly driven by increases in net disbursements of the corporate sectors foreign loans and
placement of nonresidents deposits in domestic banks.

Net other investments, which represents the difference between other investments in Indonesia by foreign
investors and other investments abroad by Indonesian investors, recorded net outflows of U.S.$8.2 billion in
2009, but posted a U.S.$2.3 billion net inflow in 2010. Net other investments recorded net outflows of U.S.$1.8
billion in 2011, net inflows of U.S.$1.9 billion in 2012, net outflows of U.S.$0.8 billion in 2013, and net outflows
of U.S.$0.9 billion in the nine months ended September 30, 2014. Other investments abroad recorded net outflow
of U.S.$10.8 billion, U.S.$12.0 billion and U.S.$1.7 billion in 2008, 2009 and 2010, respectively. In 2011, other
investment abroad by Indonesian investors in the form of trade credits, loans, currencies and deposits posted net
outflows of U.S.$6.8 billion, a significant increase from net outflows of U.S$1.7 billion in 2010. Other
investment abroad recorded net outflows of U.S.$5.4 billion in 2012 and net outflows of U.S.$3.4 billion in 2013.

During the nine months ended September 30, 2014, other investments abroad recorded a net outflow of
U.S.$5.7 billion, which is higher compared to the net outflow in the same period in 2013. This was primarily due
to the placement of private savings abroad in keeping with the strong inflows in portfolio investment. See
Foreign Trade and Balance of Payments Balance of Payments.

Direct Investment Realizations

Foreign Direct Investment
Under Indonesian law, most direct equity investments by foreign persons are subject to approval by the
BKPM, regardless of the size of the investment. The BKPM review applications for approval based on the
Negative List of Investment, as currently set forth in Presidential Regulation 39 of 2014 which comprises a list of
those business sectors that are closed to foreign investment and those that are open to foreign investment subject
to certain conditions, including limits on the percentage of foreign capital ownership.

109
 Due to the different concept and method of compiling investment statistics, administrative FDI statistical
data published by the BKPM and Balance of Payment FDI statistical data published by Bank of Indonesia are
not comparable. The BKPM reviews requests for approval based on criteria established by the particular ministry
that regulates the sector in which the foreign investor seeks to invest. Upon receiving approval, a foreign investor
may complete the investment, but is not obligated to do so. As the BKPM calculates the amount of realized
foreign direct investment using different criteria than those used by Bank Indonesia, the data regarding realized
foreign direct investments is not comparable to those under Foreign Investment in Indonesia.

110
 The following table sets forth the amount of realized FDI by sector of the economy for the periods indicated.
Prior to 2010, data was derived from recorded investment plans of companies that had obtained a permanent
license issued by the BKPM. Beginning in 2010, realized administrative FDI statistics were compiled based on
investment progress reports, rather than permanent licenses issued by the BKPM. The objective of this new
methodological approach (Laporan Kegiatan Penanaman Modal, or LKPM methodology) was to provide FDI
statistical data of investment activities on the reporting periods. LKPM data is a flow concept in which data is
collected from quarterly investor progress reports. On the other hand, permanent licenses investment data is a
stock concept or cumulative investment data which is not clear in its distribution across periods. The LKPM
methodology has been adopted for both domestic and foreign capital as it more accurately reflects realized
investment flows by recording investments as they occur as opposed to cumulatively, as was previously the case.
However, the LKPM methodology still has the effect of understating actual realized FDI because not all investors
file investment progress reports regularly. Under the LKPM methodology, investment companies whose projects
are still under development will now need to submit investment progress reports every quarter (instead of every
six months, as previously required) and investment companies who have obtained a permanent license are now
required to submit an investment progress reports every six months (instead of annually, as previously required).

Realized Foreign Direct Investment by Sector(1)

Nine months ended
Year ended December 31, September 30,
2009 2010 2011 2012 2013 2014
(in millions of U.S. dollars)
Primary Sector
Food Crops & Plantation . . . . . . . . . . . . . . . . . . . 122 751 1,223 1,602 1,605 1,887
Livestock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 25 21 20 11 40
Forestry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 10 27 29 54
Fishery . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 18 10 29 10 64
Mining . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 333 2,201 3,619 4,255 4,817 4,225
Total Primary Sector . . . . . . . . . . . . . . . . . . 463 3,034 4,883 5,933 6,472 6,271
Secondary sector:
Food Industry . . . . . . . . . . . . . . . . . . . . . . . . . . . . 552 1,026 1,105 1,783 2,118 3,002
Textile Industry . . . . . . . . . . . . . . . . . . . . . . . . . . 251 155 497 473 751 524
Leather Goods & Footwear Industry . . . . . . . . . . 123 130 255 159 96 239
Wood Industry . . . . . . . . . . . . . . . . . . . . . . . . . . . 62 43 51 76 40 93
Paper and Printing Industry . . . . . . . . . . . . . . . . . 69 46 258 1,307 1,169 721
Chemical and Pharmaceutical Industry . . . . . . . . 1,183 793 1,467 2,770 3,142 2,263
Rubber and Plastic Industry . . . . . . . . . . . . . . . . . 208 104 370 660 472 513
Non Metallic Mineral Industry . . . . . . . . . . . . . . 20 28 137 146 874 848
Metal, Machinery & Electronic Industry . . . . . . . 655 590 1,773 2,453 3,327 1,991
Medical Precision & Optical Instruments,
Watches & Clock Industry . . . . . . . . . . . . . . . 5 42 3 26 13
Motor Vehicles & Other Transport Equipment
Industry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 583 394 770 1,840 3,732 1,824
Other Industry . . . . . . . . . . . . . . . . . . . . . . . . . . . 120 28 65 100 112 194
Total Secondary Sector . . . . . . . . . . . . . . . . 3,831 3,337 6,790 11,770 15,859 12,226
Tertiary sector:
Electricity, Gas & Water Supply . . . . . . . . . . . . . 349 1,429 1,865 1,515 2,222 786
Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 431 618 354 240 527 713
Trade & Repair . . . . . . . . . . . . . . . . . . . . . . . . . . 706 774 826 484 605 1,924
Hotel & Restaurant . . . . . . . . . . . . . . . . . . . . . . . 307 347 242 768 462 531
Transport, Storage & Communication . . . . . . . . 4,171 5,072 3,799 2,808 1,450 2,950
Real Estate, Ind. Estate & Business Activities . . 396 1,050 199 402 678 964
Other Services . . . . . . . . . . . . . . . . . . . . . . . . . . . 161 554 517 646 342 1,018
Total Tertiary Sector . . . . . . . . . . . . . . . . . . 6,521 9,844 7,802 6,862 6,286 8,888
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,815 16,215 19,475 24,565 28,617 27,386

Source: BKPM
(1) Excludes foreign investment in oil and natural gas projects, banking, non-bank financial institutions, insurance, leasing, mining in terms
of contracts of work, coal mining in terms of agreement of work, investment in which licenses were issued by a technical/sectoral
agency, portfolio as well as household investment.

111
 The amount of FDI realized has fluctuated over the past six years, from U.S.$10.8 billion in 2009, rising by
more than 50.0% to U.S.$16.2 billion in 2010. In 2011, the amount of FDI realized was U.S.$19.5 billion and the
amount of FDI realized increased to U.S.$24.6 billion in 2012 and U.S.$28.6 billion in 2013. Although 2014 was
an election year in Indonesia, the Government expects the positive trend in FDI to continue. The target for FDI
realization in 2014 was U.S.$28.3 billion and during the nine months ended September 30, 2014, 96.8% of the
targeted FDI had been realized.

Domestic Direct Investment

In addition to direct equity investments by foreign persons, BKPM also approves certain types of domestic
direct investments. The following table sets forth the amount of realized domestic direct investment by sector of
the economy for the periods indicated.

Realized Domestic Direct Investment by Sector(1)

Nine months ended

Year ended December 31, September 30,
2009 2010 2011 2012 2013 2014
(in billions of Rupiah)
Primary sector:
Food Crops & Plantation . . . . . . . . . . . . . 2,309.2 8,727.3 9,367.3 9,631.5 6,589 8,141
Livestock . . . . . . . . . . . . . . . . . . . . . . . . . 288.0 156.5 247.2 97.4 361 449.3
Forestry . . . . . . . . . . . . . . . . . . . . . . . . . . 171.6 12.5 144.5 6.3
Fishery . . . . . . . . . . . . . . . . . . . . . . . . . . . 24.7 1.0 0.1 14.7 4 6.0
Mining . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,794.0 3,075.0 6,899.2 10,480.9 18,762 2,300
Total Primary Sector . . . . . . . . . . . . 4,415.9 12,131.4 16,526.3 20,369.1 25,716 10,903
Secondary sector:
Food Industry . . . . . . . . . . . . . . . . . . . . . . 5,768.5 16,405.4 7,940.9 11,166.7 15,081 14,140
Textile Industry . . . . . . . . . . . . . . . . . . . . 2,645.7 431.7 999.2 4,450.9 2,446 922.2
Leather Goods & Footwear Industry . . . . 4.0 12.5 13.5 76.7 80 108.1
Wood Industry . . . . . . . . . . . . . . . . . . . . . 33.5 451.3 514.9 57.0 391 81.2
Paper and Printing Industry . . . . . . . . . . . 1,000.8 1,102.8 9,296.3 7,561.0 6,849 3,805
Chemical and Pharmaceutical
Industry . . . . . . . . . . . . . . . . . . . . . . . . 5,850.1 3,266.0 2,711.9 5,069.5 8,887 9,083
Rubber and Plastic Industry . . . . . . . . . . . 1,532.8 522.8 2,295.7 2,855.0 2,905 1,998
Non Metallic Mineral Industry . . . . . . . . 786.1 2,264.6 7,440.5 10,730.7 4,624 8,005
Metal, Machinery & Electronic
Industry . . . . . . . . . . . . . . . . . . . . . . . . 1,466.8 789.6 6,787.0 7,225.7 7,567 3,739
Medical Precision & Optical Instruments,
Watches & Clock Industry . . . . . . . . . . 10 4.6
Motor Vehicles & Other Transport
Equipment Industry . . . . . . . . . . . . . . . 66.5 362.2 529.1 664.4 2,183 404.0
Other Industry . . . . . . . . . . . . . . . . . . . . . 279.5 3.7 4.8 31.5 148 28.9
Total Secondary Sector . . . . . . . . . . 19,434.4 25,612.6 38,533.8 49,888.9 51,171 42,372
Tertiary sector:
Electricity, Gas & Water Supply . . . . . . . 3,442.7 4,929.8 9,134.7 3,796.8 25,831 34,064
Construction . . . . . . . . . . . . . . . . . . . . . . . 2,765.7 67.6 598.2 4,586.6 6,033 7,651
Trade & Repair . . . . . . . . . . . . . . . . . . . . 1,441.9 116.4 328.6 1,030.4 2,217 193.7
Hotel & Restaurant . . . . . . . . . . . . . . . . . 357.2 390.3 394.4 1,015.0 1,402 344.7
Transport, Storage & Communication . . . 809.1 13,787.7 8,130.1 8,612.0 13,179 9,858
Real Estate, Ind. Estate & Business
Activities . . . . . . . . . . . . . . . . . . . . . . . 122.8 261.7 732.7 58.0 2,152 9,637
Other Services . . . . . . . . . . . . . . . . . . . . . 5,010.1 3,328.6 1,621.9 2,825.1 462 336.3
Total Tertiary Sector . . . . . . . . . . . . 13,949.5 22,882.2 20,940.6 21,924.0 51,276 62,086
Total . . . . . . . . . . . . . . . . . . . . . 37,799.8 60,626.3 76,000.7 92,182.0 128,163 115,362

(1) Excludes domestic investment in oil and natural gas projects, banking, non-bank financial institutions, insurance, leasing, mining in
terms of contracts of work, coal mining in terms of agreement of work, investment in which licenses were issued by a technical/sectoral
agency, portfolio as well as household investment.

112
 The amount of domestic investment realized has shown overall growth over the past six-year period,
increasing from Rp37.8 trillion in 2009, to Rp60.6 trillion in 2010, to Rp76.0 trillion in 2011, Rp92.2 trillion in
2012, and further to Rp128.2 trillion in 2013. BKPMs targeted domestic investment realization for 2014 was
Rp159.3 trillion and as of September 30, 2014, 72.4% of the 2014 target had been realized.

Foreign Trade and Balance of Payments

Membership in International and Regional Free Trade Agreements
The Government supports the liberalization of international trade and investment through its membership in
several international and regional trade organizations. Indonesia is a founding member of ASEAN, which has
served as the forum for the negotiation of a number of regional agreements, and Indonesia has participated in
several of these agreements. Indonesia is a signatory to the GATT 1947 and a founding member of the WTO
through the ratification of Law No. 7 of 1994 on Agreement Establishing the World Trade Organization.
Indonesia is also a member of the APEC forum, one of the goals of which is to promote liberalization of
international trade and investment. The ASEAN member states have concluded a series of free trade agreements
with seven dialogue partners, namely, Japan, India, China, the Republic of Korea, Pakistan, Australia and New
Zealand. In addition, Japan and Indonesia entered into an economic partnership agreement effective July 2008.
Indonesia and Pakistan also entered into a Preferential Trade Agreement effective on September 1, 2013. The
free trade agreements with India, China and the Republic of Korea cover issues relating to goods, services and
investments while those with Japan, Pakistan and India cover only the trade of goods. Negotiations for free trade
agreements that cover services and investments with Japan and India are ongoing. Despite these ongoing
negotiations, the ASEAN free trade agreements with the dialogue partners have been implemented since 2010.
See Foreign Relations and International and Regional Organizations.

Tariff Reforms
The Minister of Finance is authorized to set rates for import duties under Law No. 10 of 1995 on Customs as
amended by Law No. 17 of 2006 on Amendment to Law No. 10 of 1995 on Customs. The Republic maintains a
policy of using tariff rates to promote the competitiveness of Indonesian products in international markets and to
reduce price distortions in order to support the establishment of free trade.

In line with the Republics commitments under the GATT and to the WTO, the Republic implemented a
tariff reduction program from 1996 to 2003. By the end of this program in 2003, the Republics simple average
tariff rate was 7.2%, compared to 15.5% in 1995. Further, 83.4% of the Republics tariff lines had rates ranging
from 0.0% to 10.0%, compared to 51.9% in 1995. The Republic then introduced the Tariff Harmonization
Program, which aimed at harmonizing and to further reduce tariffs during the period 2005 to 2010. As a result of
this program the Republics simple average tariff rate based on tariffs set for 2010 was 7.7%. Further, 81.6% of
the Republics tariff lines had rates ranging from 0.0-10.0%. Since 2012, Indonesia has implemented the 2012
Harmonized Commodity Description and Coding System and has adjusted it according to the Minister of Finance
Regulation No. 133/PMK.011/2013 which was issued as a second amendment to the Minister of Finance
Regulation No. 213/PMK.011/2011.

The Republic is also implementing preferential tariff commitments under five regional trade agreements: the
ASEAN Trade in Goods Agreement (ATIGA), the ASEAN-China Free Trade Agreement (ACFTA), the
ASEAN-Korea Free Trade Agreement (AKFTA), the ASEAN-India Free Trade Agreement (AIFTA), the
ASEAN-Australia and New Zealand Free Trade Agreement (AANZFTA), and two bilateral trade agreements:
the Indonesia-Japan Economic Partnership Agreement (IJ-EPA) and the Indonesia-Pakistan Preferential Trade
Agreement (IP-PTA). In line with the Republics commitments under the ATIGA scheme, the Republic
eliminated its tariffs for 98.7% of products covered by the ATIGA scheme and reduced its simple average tariff
to 0.8% in 2012 from 1.9% in 2009. The Republic also eliminated its tariff under the ACFTA to 2.5% and under
the AKFTA to 2.2% based on tariffs set for 2012. The Republic has committed to eliminate tariffs for 93.0% of
products covered by the IJ-EPA by 2023. The AIFTA, which has been implemented for two years since 2012,
has an average tariff of 6.1% at present, while the AANZFTA, which has been implemented for three years, has
an average tariff of 3.1% based on tariffs set for 2012. The IP-PTA entered into force in September 2013 and
covers 232 tariff lines. Under the Minister of Finance Regulation No. 75/PMK.011/2012, as amended by PMK
153/PMK011/2014, regarding Stipulation of Export Goods Subject to Export Duty and Export Duty Rate, goods
subject to export duty include 65 types of mineral ore with an export duty rate of 20.0%, Crude Palm Oil (CPO)
and products thereof, raw hides and skins, and woods. The objectives which are to be achieved under this
regulation include export control, development of the refinery and processing industries and environment

113
protection. The export ban on mineral ore came into effect on January 12, 2014 as a result of Minister of Finance
Regulation No.6/PMK.011/2014 which was issued as a second amendment to the Minister of Finance Regulation
No. 75/PMK.011/2012. This regulation established the progressive increase of export duties on various processed
mineral products every six months from 2014 to 2016. These increases will result in increased tariffs from a
minimum of 20.0% to 25.0% in the first six months of 2014 to 60.0% in the second half of 2016.

Exports and Imports

Beginning in 2012, the Republic started using a revised methodology in compiling exports and imports data.
This revised methodology was implemented in order to comply with international best practices and to improve
consistency with other Bank Indonesia publications. As a result of this change, the classification of certain export
and import products has changed. Revisions following classification changes were carried out for data published
in 2005 onwards. Since March 1, 2014, exporters must declare the value of their exported goods using terms of
delivery cost insurance freight in order to enhance the validity and accuracy of freight and insurance data for
export activities. However, this new regulation does not change the business process of export transactions, in
which the export value is still the real transaction value agreed by exporters and importers.

The following table shows Indonesias exports and imports for the periods indicated.

Exports and Imports(1)

Nine months ended

Year ended December 31, September 30,
2009(2) 2010 2011 2012 2013P 2014P
(in millions of U.S. dollars)
Exports:
Oil and gas exports (f.o.b.) . . . . . 20,616 28,658 38,067 35,571 33,588 22,368
Non-oil and gas exports
(f.o.b.) . . . . . . . . . . . . . . . . . . . 99,030 121,307 153,042 151,775 148,501 109,713
Total exports (f.o.b.) . . . . . . 119,646 149,966 191,109 187,346 182,089 132,082
Total imports (c.i.f.) . . . . . . . . . . . . . . (93,786) (125,576) (167,048) (189,138) (186,186) (134,526)
Balance of trade . . . . . . . . . 25,860 24,390 24,060 (1,791) (4,097) (2,445)

Source: Bank Indonesia

P Preliminary.
(1) Indonesias trade statistics, which are used as a basis for the balance of payments statistics, are compiled by Bank Indonesia and differ in
coverage and timing from similarly titled data compiled by BPS.
(2) Data based on BPM5.

A combination of depreciation of the Rupiah, rising interest rates and economic contraction during the early
period of the Asian financial crisis affected imports more quickly than exports. The time lag between the fall in
imports and the decline in exports was the main reason for improvement in Indonesias trade balance in the
beginning of the crisis. To correct past distorted trade and industrial policies, the Government reduced nominal
and effective rates of protection and eliminated non-tariff barriers. Transparent policies on the privatization of
state-owned-enterprises were adopted to promote efficiency through transfers of technology and improvements in
corporate governance and corporate culture.

The global financial crisis that began in 2008 adversely affected Indonesias international trade as reflected
in the contraction of total exports and imports by 14.3% and 26.5%, respectively, in 2009. As the global economy
and financial conditions improved in 2010, Indonesias exports and imports strengthened again by growing
rapidly at 32.1% and 43.8%, respectively. In 2011 exports and imports strengthened by 27.0% and 30.7%,
respectively. Exports increased in line with high volume of world trade and global commodity prices. Imports
continued to increase, driven by domestic economic activities in the transportation and communication sectors.
To further strengthen exports, the Republic intends to diversify its export markets by increasing exports to
Africa, the Middle East, South America and Russia. In 2012, as the global economic crisis unfolded, total exports
recorded a negative growth of 6.1% due to lower external demand and a decrease in commodity prices.
Conversely, in line with robust domestic demand, imports grew further by 8.0%, although at a slower growth rate
than the preceding year. In 2013, exports and imports contracted by 2.7% and 1.6%, respectively (year-on-year).
Declining global demand and falling global commodity prices led to the contraction in export growth. In addition
to these cyclical factors, export performance was also affected by structural problems such as the composition of

114
Indonesias export structure that is predominantly derived from natural resource-based commodities. Although
imports contracted by 1.6% (year-on-year), imports remained strong due to structural problems that have limited
capacity for domestic industries to fulfill demand. During the first quarter of 2014, exports were down by 1.8%
while imports contracted by 6.3% as compared to the same period in 2013.

In 2009, exports contracted 14.3% as global demand for exports slowed. Imports recorded a larger
contraction of 26.5% as the demand for imports decreased in line with decreasing domestic economic activity
and the Rupiahs depreciation amidst the global economic crisis. Consequently, the trade surplus rose from
U.S.$12.1 billion in 2008 to U.S.$25.9 billion in 2009.

As an effort to enhance export development, the Government issued Law No. 2 of 2009 on Indonesian
Export Financing Agency that stipulates the Indonesian Export Financing Agency (Lembaga Pembiayaan Ekspor
Indonesia or LPEI) as an independent entity. The LPEI proposes to support exports by providing export-related
funding through financing support, guarantees and insurance. Funding for export-related financing is intended to
be raised from the issuance of debt securities, from short-term, medium-term, and long-term loans from foreign
governments, multilateral agencies, local and foreign banks and financial agencies, and funds provided by Bank
Indonesia. LPEI also provides export facilities for exports under the Sharia system.

In 2010, Indonesias trade balance posted a surplus of U.S.$24.4 billion, a slight decrease from a surplus of
U.S.$25.9 billion in 2009. Exports increased 25.3% as external demand, particularly that directed at the Asian
markets, grew strongly in keeping with the recovery of the global economy. Export performance also benefited
from escalating global commodity prices. Imports grew by 33.9% in the same period. Import value was boosted
by strong domestic economic expansion and an appreciation of the exchange rate.

In 2011, Indonesia recorded a trade surplus of U.S.$24.1 billion, a slight decrease from a surplus of
U.S.$24.4 billion in 2010. Exports increased 27.4% due to an increase in global commodity trading volume and
price. Export performance was also supported by the diversification of exports to Asian emerging countries, the
advantageous natural resource-based composition of Indonesias main export commodities and competitive
rupiah exchange rates compared to other currencies in the region. Imports accelerated by 33.0% in response to
strong domestic demand.

In 2012, Indonesia recorded a trade deficit of U.S.$1.8 billion. Exports decreased 2.0% due to the global
economic slowdown, reflected by weak growth in world trade volume and demand from Indonesias trading
partner countries, and the steady decline in commodity prices. Imports accelerated by 13.2% in line with strong
domestic demand and mounting consumption of oil-based fuels.

In 2013, Indonesia recorded a trade deficit of U.S.$4.1 billion, which was an increase from the deficit
amount in 2012. Exports decreased by 2.8% as a result of the global economic slowdown with weaker growth in
emerging market countries reducing demand for Indonesias exports. Exports contracted further because of the
simultaneous deterioration in Indonesias terms of trade and downward movement in global commodity prices.
In addition, structural problems related to the export of natural resource-based commodities and worsening terms
of trade resulted in the weaker performance of Indonesias commodity exports. At the same time, although
imports registered a negative growth of 1.6%, overall imports remained high as domestic production was unable
to keep pace with the burgeoning demand from the middle class, particularly in relation to technological goods.
Oil imports remained high due to heavy reliance on oil in the national energy supply structure.

During the eleven months ended November 30, 2014, Indonesia recorded a trade deficit of U.S.$2.07 billion
with exports of U.S.$161.67 billion, which is a 2.4% decrease compared to the same period in 2013. Oil and gas
exports decreased by 4.3% (year-on-year) while non-oil and gas exports decreased by 2.0% (year-on-year).

115
 The following table sets forth Indonesias exports by major commodity groups for the periods indicated.

Exports by Sector

Nine months
ended
Year ended December 31, September 30,
2009(4) 2010 2011 2012 2013P 2014P
(in thousands of U.S. Dollars)
General merchandise . . . . . . . . . . . . . . 118,434,990 148,866,468 189,432,260 185,337,265 180,293,992 130,850,239
Agricultural
Coffee bean . . . . . . . . . . . . . . 822,731 811,997 1,030,338 1,241,922 1,166,406 742,338
Tea . . . . . . . . . . . . . . . . . . . . . 144,050 149,569 136,366 126,754 131,112 83,967
Spices . . . . . . . . . . . . . . . . . . . 238,702 408,873 430,320 631,746 554,137 412,323
Tobacco . . . . . . . . . . . . . . . . . 101,954 76,221 61,037 60,791 93,458 57,139
Cocoa bean . . . . . . . . . . . . . . . 1,076,547 1,186,717 616,202 388,326 443,372 165,701
Shrimp and prawn . . . . . . . . . 783,930 850,988 1,064,620 1,111,388 1,467,208 1,311,082
Other agricultural products . . 1,179,201 1,448,766 1,738,979 2,023,351 1,931,996 1,569,378
Total Agricultural
products . . . . . . . . . . 4,347,116 4,933,130 5,077,862 5,584,278 5,787,688 4,341,928
Manufacture products
Textile and Textile
products . . . . . . . . . . . . . . . 9,303,520 11,176,059 13,172,828 12,510,222 12,770,966 9,708,893
Processed wood products . . . . 2,226,292 2,819,030 3,244,615 3,338,150 3,510,392 2,921,082
Palm oils . . . . . . . . . . . . . . . . 10,254,111 12,890,141 16,709,854 17,685,127 16,518,525 12,759,618
Chemicals . . . . . . . . . . . . . . . . 2,278,481 3,371,990 4,579,567 3,634,536 3,498,625 3,069,711
Base metal products . . . . . . . . 7,173,329 8,989,998 10,774,417 9,303,974 8,614,179 6,832,166
Electrical apparatus,
measuring instruments and
option . . . . . . . . . . . . . . . . . 8,569,144 8,154,411 8,592,466 11,157,423 10,716,148 7,567,407
Cement . . . . . . . . . . . . . . . . . . 157,761 108,805 57,724 20,050 49,657 29,723
Paper and paper products . . . . 3,428,698 4,121,145 4,144,400 3,938,382 3,732,138 2,872,442
Processed rubber . . . . . . . . . . 4,681,744 9,199,403 14,083,724 10,368,180 9,306,376 5,539,382
Oil products(1) . . . . . . . . . . . . . 2,159,786 3,585,935 4,067,730 3,270,001 3,846,251 2,479,694
Liquefied Petroleum Gas(1) . . 48,194 0 294,528 9,176 10,534 3,285
Other manufacture
products . . . . . . . . . . . . . . . 26,074,435 28,555,473 36,101,426 40,215,423 40,604,203 35,024,930
Total Manufacture
products . . . . . . . . . . 76,355,494 92,972,390 115,823,279 115,450,644 113,177,996 88,808,333
Mining products
Copper ore . . . . . . . . . . . . . . . 5,380,287 6,325,227 4,706,934 2,565,990 2,999,560 904,391
Nickel ore . . . . . . . . . . . . . . . . 291,554 574,683 1,333,171 1,458,409 1,677,366 85,913
Coal . . . . . . . . . . . . . . . . . . . . 13,765,088 17,801,230 26,924,584 26,248,270 24,359,167 16,014,871
Bauxite . . . . . . . . . . . . . . . . . . 240,056 453,951 767,138 637,597 1,318,775 46,673
Crude oil(1) . . . . . . . . . . . . . . . 8,007,973 11,218,768 14,166,567 12,723,142 12,187,863 7,102,233
Natural Gas(1) . . . . . . . . . . . . . 9,777,923 12,967,686 18,196,212 17,670,962 15,689,119 11,390,685
o/w Liquefied Natural
Gas . . . . . . . . . . . . . . . . . 7,188,548 9,432,489 12,961,524 11,943,550 10,568,458 7,839,754
Other mining products . . . . . . 258,820 381,525 538,971 455,659 591,546 164,268
Total Mining
products . . . . . . . . . . 37,721,701 49,723,071 66,633,576 61,760,030 58,823,397 35,709,033
Other merchandise(2) . . . . . . . . . . 10,679 1,237,877 1,897,544 2,542,314 2,504,910 1,990,945
Other goods(3) . . . . . . . . . . . . . . . . . . . . 1,210,753 1,099,368 1,676,441 2,009,286 1,795,235 1,231,283
Total Exports . . . . . . . . . . 119,645,743 149,965,836 191,108,702 187,346,552 182,089,227 132,081,522
Memorandum:
Non oil & gas exports . . . . . . . . . . 99,029,573 121,307,381 153,042,038 151,775,044 148,500,805 109,713,358
Oil & gas exports . . . . . . . . . . . . . . 20,616,170 28,658,457 38,066,672 35,571,432 33,588,422 22,368,165
Source: Bank Indonesia
P Preliminary.
(1) As a component of oil and gas exports.
(2) Consists of art goods, goods not elsewhere specified, and goods procured in ports by carriers.
(3) Consists of non-monetary gold and merchanting goods.
(4) Data based on BPM5.

116
 Exports of goods have increased over the past few years, except in 2009 and 2012 when the impact of the
global financial crisis adversely impacted Indonesias international trade balance. Exports also decreased in 2013
due to a cyclical downturn in the global economy. As a proportion of total exports, manufactured products have
decreased from 66.1% of total exports in 2008 to 62.2% in 2013. Indonesia faces increasing competition in labor-
intensive sectors such as textiles, clothing and footwear from countries such as China and Vietnam. The
proportion of exports of goods represented by mining products increased from 29.8% in 2008 to 32.3% in 2013,
in line with higher commodity prices and exports volume. The proportion of agricultural products has decreased
from 3.3% in 2008 to 3.2% in 2013.

In 2009, Indonesias exports contracted by 14.3% to U.S.$119.6 billion, compared to U.S.$139.6 billion in
2008 primarily from a 17.3% contraction in manufactured products exports and a 6.9% decrease in agricultural
products exports. Mining products exports decreased by 9.2%, whereas oil and gas exports in the same period
also contracted by 35.0%, mainly due to a sharp decline in oil prices. The average price of Indonesias oil exports
for 2009 was U.S.$59.6 per barrel, compared to an average of U.S.$93.5 per barrel in 2008. Average oil
production was 949,000 barrels per day in 2009, a decrease from the 976,000 barrels per day in 2008.

In 2010, however, Indonesias export performance experienced buoyant growth at 25.3% from
U.S.$119.6 billion in 2009 to reach U.S.$150.0 billion. Strong world demand for resource-based export
commodities and a hike in Indonesias major export commodity prices were among the factors that boosted the
non-oil and gas export performance. Non-oil and gas exports increased by 22.5% to U.S.$121.3 billion from
U.S.$99.0 billion in 2009. The increase in exports of agricultural products (13.5%), mining sector products
(31.8%) and manufactured products (21.8%) supported overall export growth. Meanwhile, oil and gas exports in
2010 increased by 39.0%, reaching U.S.$28.7 billion from the previous year. A sharp increase in oil and gas
exports was mainly due to oil price hikes. The average price of Indonesias crude oil exports for 2010 was
U.S.$77.7 per barrel, compared to an average of U.S.$59.6 per barrel in 2009. The increase in oil exports was
also influenced by an increase in crude export volume, reaching 144.0 million barrels per day in 2010, from
133.2 million barrels in 2009.

In 2011, exports increased by 27.4% from U.S.$150.0 billion in 2010 to U.S.$191.1 billion, in line with an
increase in commodity prices. The increase in exports of agricultural products (2.9%), mining products
(34.0%) and manufactured products (24.6%) supported the increase in exports. In 2011, non-oil and gas exports
increased by 26.2% to U.S.$153.0 billion from U.S.$121.3 billion in 2010. Oil and gas exports in 2011 increased
by 32.8%, reaching U.S.$38.1 billion, primarily due to oil price hikes. The average price of Indonesias crude oil
exports for 2011 was U.S.$109.2 per barrel, compared to an average of U.S.$77.7 per barrel in 2010.

In 2012, exports decreased by 2.0% from U.S.$191.1 billion in 2011 to U.S.$187.3 billion. This decrease
was due to a decrease in exports of mining products (7.3%) and manufactured products (0.3%), partially offset by
an increase in exports of agricultural products (10.0%). In 2012, non-oil and gas exports decreased by 0.8% from
U.S.$153.0 billion in 2011 to U.S.$151.8 billion. Oil and gas exports in 2012 amounted to U.S.$35.6 billion,
6.6% lower than in 2011 due to decreases both in oil and gas exports. The average price of Indonesias crude oil
exports for 2012 was U.S.$110.7 per barrel, compared to an average of U.S.$109.2 per barrel in 2011.

In 2013, exports decreased by 2.8% from U.S.$187.3 billion in 2012 to U.S.$182.1 billion. This decrease
was attributable to the economic slowdown in emerging market countries, led by China and India, that dampened
demand for exported goods from Indonesia. This was compounded by a worldwide economic slowdown which
also resulted in lower commodity prices. The slowdown eroded Indonesias terms of trade and ultimately put
more pressure on Indonesias commodity exports. Exports of mining products decreased by 4.8% and
manufactured products contracted by 2.0%, while exports of agricultural products increased by 3.6%. In 2013,
non-oil and gas exports decreased by 2.2% from U.S.$151.8 billion in 2012 to U.S.$148.5 billion. Oil and gas
exports in 2013 amounted to U.S.$33.6 billion, 5.6% lower than in 2012. The average price of Indonesias crude
oil exports for 2013 was U.S.$104.0 per barrel, compared to an average of U.S.$110.7 per barrel in 2012.

During the eleven months ended November 30, 2014, exports of U.S.$161.67 billion were registered, which
is a 2.4% decrease compared to the same period in 2013. Oil and gas exports decreased by 4.3% (year-on-year)
while non-oil and gas exports decreased by 2.0% (year-on-year). Manufactured products exports increased by
4.4% (year-on-year), agricultural products exports increased by 0.4%, while the export of mining products and
others decreased by 25.6%. The average price of Indonesias crude oil exports during the eleven months ended
November 30, 2014 was U.S.$75.4 per barrel.

117
 The following table sets forth Indonesias exports by country of destination for the periods indicated.

Exports by Destination
Nine months
ended
Year ended December 31, September 30,
2009(2) 2010 2011 2012 2013P 2014P
(in thousands of U.S. Dollars)
America
North America
United States of America . . . . . . . . . . . . . . . . 10,802,392 13,853,289 16,130,055 14,765,254 15,622,136 12,355,640
Canada . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 499,133 701,502 946,635 787,624 775,984 572,862
Other North America . . . . . . . . . . . . . . . . . . . . 1,053 956 836 1,185 1,626 879
Total North America . . . . . . . . . . . . . . . . 11,302,578 14,555,747 17,077,526 15,554,063 16,399,745 12,929,380
Central and South America
Argentina . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 157,239 277,710 354,038 310,678 448,181 187,113
Brazil . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 903,654 1,506,827 1,665,021 1,529,742 1,569,342 1,182,614
Mexico . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 398,055 478,472 597,834 594,865 625,022 603,475
Other Central and South America . . . . . . . . . . 613,185 911,967 1,167,304 1,153,932 1,127,463 883,368
Total Central and South America . . . . . . 2,072,133 3,174,977 3,784,197 3,589,217 3,770,009 2,856,570
Total America . . . . . . . . . . . . . . . . . 13,374,711 17,730,725 20,861,723 19,143,280 20,169,754 15,785,950
Europe
European Union
Netherlands . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,956,816 3,583,352 4,809,674 4,546,619 4,099,858 2,958,255
Belgium . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,047,620 1,160,303 1,348,769 1,293,102 1,254,708 918,997
United Kingdom . . . . . . . . . . . . . . . . . . . . . . . 1,415,209 1,570,807 1,627,848 1,679,815 1,618,871 1,251,247
Italy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,659,244 2,252,617 2,995,990 2,279,791 2,121,981 1,750,875
Germany . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,379,496 2,966,802 3,201,828 3,064,521 2,862,481 2,156,682
France . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 857,479 844,421 1,049,478 1,116,351 1,053,698 764,345
Spain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,792,677 2,062,966 2,231,984 2,059,230 1,806,692 1,501,474
Other European Union . . . . . . . . . . . . . . . . . . 1,487,133 1,655,174 2,027,124 1,814,223 1,886,988 1,457,499
Total European Union . . . . . . . . . . . . . . . 13,595,674 16,096,443 19,292,694 17,853,652 16,705,277 12,759,374
Russia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 312,620 596,415 852,039 866,396 934,132 749,651
Turkey . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 679,922 1,063,717 1,423,668 1,361,964 1,537,295 1,111,158
Other Europe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 646,646 822,589 900,788 819,235 913,110 524,167
Total Europe . . . . . . . . . . . . . . . . . . . . . . 15,234,862 18,579,164 22,469,189 20,901,247 20,089,814 15,144,350
Asia and Middle East
ASEAN
Brunei Darussalam . . . . . . . . . . . . . . . . . . . . . 57,089 58,651 65,327 116,854 88,505 74,407
Philippines . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,446,407 3,153,058 3,686,766 3,667,656 3,774,591 2,934,582
Cambodia . . . . . . . . . . . . . . . . . . . . . . . . . . . . 199,187 216,290 266,448 290,684 317,085 317,315
Lao PDR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,668 5,504 10,613 23,736 5,086 4,407
Malaysia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,847,510 9,143,647 10,579,133 11,000,550 10,475,415 7,228,004
Myanmar . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 180,800 224,861 322,090 412,643 576,497 412,448
Singapore . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,172,922 9,676,416 12,188,436 16,138,033 15,724,945 11,814,970
Thailand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,262,470 4,210,807 4,946,490 6,491,642 6,051,348 4,434,329
Vietnam . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,449,705 1,875,357 2,258,382 2,266,667 2,558,864 1,690,016
Total ASEAN . . . . . . . . . . . . . . . . . . . . . 25,620,759 28,564,590 34,323,685 40,408,467 39,572,336 28,910,479
Hong Kong SAR . . . . . . . . . . . . . . . . . . . . . . . 2,116,123 2,342,544 3,078,247 2,644,935 2,646,008 2,166,109
India . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,561,412 9,478,661 13,215,101 12,500,116 12,969,881 9,046,847
Iraq . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40,569 54,692 148,874 44,886 171,973 48,602
Japan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19,299,659 25,231,584 32,262,656 28,968,734 26,677,721 15,489,036
South Korea . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,225,553 12,488,237 14,613,206 14,269,724 11,260,652 7,920,593
Pakistan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 655,690 680,752 917,913 1,377,718 1,412,462 1,592,488
People Republic of China . . . . . . . . . . . . . . . . 11,572,849 15,398,808 23,118,704 21,523,958 22,425,902 13,069,149
Saudi Arabia . . . . . . . . . . . . . . . . . . . . . . . . . . 931,964 1,108,315 1,372,845 1,767,167 1,728,619 1,369,700
Taiwan, Province of China . . . . . . . . . . . . . . . 3,357,978 4,767,722 6,470,164 6,044,791 5,792,218 6,190,224
Other Asia and Middle East . . . . . . . . . . . . . . 4,436,828 4,932,614 6,568,274 5,166,760 4,987,194 5,201,984
Total Asia and Middle East . . . . . . . . . . . 83,819,384 105,048,520 136,089,668 134,717,255 129,644,966 91,005,210
Australia and Oceania
Australia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,353,560 4,147,713 4,933,967 4,718,098 4,344,740 3,925,476
New Zealand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 351,608 402,709 468,210 356,826 444,951 354,356
Other Australia and Oceania . . . . . . . . . . . . . . . . . . 294,632 340,919 401,999 373,454 488,064 269,435
Total Australia and Oceania . . . . . . . . . . 3,999,800 4,891,341 5,804,177 5,448,377 5,277,755 4,549,267
Africa
South Africa . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 468,473 666,756 1,409,167 1,642,411 1,245,443 1,159,800
Other Africa . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,537,761 1,811,454 2,577,234 2,951,669 3,156,584 2,452,127
Total Africa . . . . . . . . . . . . . . . . . . . . . . . 2,006,233 2,478,209 3,986,401 4,594,079 4,402,028 3,611,927
Unclassified exports(1) . . . . . . . . . . . . . . . . . . . . . . . . . . 1,210,753 1,237,877 1,897,544 2,542,314 2,504,910 1,984,817
Total (fob) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 119,645,743 149,965,837 191,108,701 187,346,552 182,089,227 132,081,522

Source: Bank Indonesia

P Preliminary.
(1) Consists of goods procured in ports by carriers and merchanting goods.
(2) Data based on BPM5.

118
 Over the past five years, Japan, the United States, Singapore, the Republic of Korea, China and India have
consistently remained Indonesias largest destinations for exports, together representing 57.5% of all exports in
2013. The United States share of Indonesian exports fell from 9.0% of total exports in 2009 to 8.6% in 2013.
The Republic of Koreas share of Indonesian exports decreased from 6.9% in 2009 to 6.2% in 2013. Singapores
share of Indonesian exports decreased from 9.3% in 2009 to 8.6% in 2013. Chinas share of Indonesian exports
increased from 9.7% in 2009 to 12.2% in 2013. The share of Indonesias exports to India increased from 6.3% in
2009 to 7.1% in 2013.

In 2009, Japan was Indonesias largest export market, accounting for 16.1% of total exports, followed by
China (9.7%), the United States (9.0%), Singapore (9.3%), and the Republic of Korea (6.9%). Asean and Europe
accounted for 21.4% and 12.7% of total exports, respectively.

In 2010, Indonesias major export markets remained unchanged, with Japan, China, the United States, the
Republic of Korea and Singapore accounting for 16.8%, 10.3%, 9.2%, 8.3% and 6.5% respectively of total
exports. Meanwhile, ASEAN and Europe accounted for 19.0% and 12.4% respectively of total exports.

In 2011, Indonesias main trading partners remained unchanged, being Japan, China, the United States, the
Republic of Korea and India accounting for 16.9%, 12.1%, 8.4%, 7.6% and 6.9%, respectively, of Indonesias
total exports.

In 2012, Indonesias main trading partners remained unchanged, being Japan, India, China, Singapore, the
United States, the Republic of Korea and India accounting for 15.5%, 11.5%, 8.6%, 7.9%, 7.6% and 6.7%,
respectively, of Indonesias total exports.

In 2013, Indonesias main trading partners remained unchanged, being Japan, China, the United States,
Singapore, India and the Republic of Korea, accounting for 14.7%, 12.3%, 8.6%, 8.6%, 7.1% and 6.2%,
respectively, of Indonesias total exports.

During the nine months ended September 30, 2014, the total share of exports to Indonesias main trading
partners, Japan, China, the United States, Singapore, India and the Republic of Korea, was 52.7%, accounting for
11.7%, 9.9%, 9.4%, 8.9%, 6.8%, and 6.0%, respectively, of Indonesias total exports.

119
 The following table sets forth Indonesias imports by major commodity groups for the periods indicated.

Imports by Sector(1)
Nine months
ended
Year ended December 31 September 30,
2009(5) 2010 2011 2012 2013P 2014P
(in thousands of U.S. Dollars)
General Merchandise . . . . . . . . . . . . . . . . . . . . . 93,763,303 125,492,064 166,977,265 189,094,827 186,153,764 134,507,734
Consumption Goods
Food and beverages, primary, mainly
for household . . . . . . . . . . . . . . . . . . 966,478 1,154,128 1,832,692 1,537,179 1,394,325 1,209,590
Food and beverages, processed, mainly
for household . . . . . . . . . . . . . . . . . . 1,368,659 2,382,616 3,533,437 2,759,331 2,812,575 1,945,789
Passenger motor cars . . . . . . . . . . . . . . 327,467 700,176 872,628 1,498,307 1,171,510 649,093
Transport equipment, nonindustrial . . . 440,391 561,609 555,433 367,729 383,485 221,687
Durable consumer goods . . . . . . . . . . . 822,675 894,444 1,192,777 1,592,871 1,624,973 1,007,547
Semi-durable consumer goods . . . . . . . 921,597 1,141,048 1,501,594 1,921,446 2,150,785 1,444,474
Non-durable consumer goods . . . . . . . . 1,172,670 1,303,702 1,490,297 1,910,634 2,154,691 1,584,717
Fuels and lubricants, processed, oil
products(2) . . . . . . . . . . . . . . . . . . . . . 4,461,898 7,748,089 11,465,941 13,720,367 14,736,636 11,066,748
Goods not elsewhere specified . . . . . . . 138,722 189,480 167,147 224,769 450,718 444,677
Total Consumption Goods . . . . . 10,620,557 16,075,292 22,611,945 25,532,632 26,879,699 19,574,320
Raw materials and auxiliary goods
Food and beverages, primary, mainly
for industry . . . . . . . . . . . . . . . . . . . . 2,669,923 3,138,468 4,112,931 4,005,713 4,348,635 3,818,607
Food and beverages, processed, mainly
for industry . . . . . . . . . . . . . . . . . . . . 1,551,430 2,244,877 3,261,887 3,317,376 3,294,925 2,647,289
Industrial supplies, primary . . . . . . . . . 2,873,785 4,394,192 6,679,561 5,480,589 6,180,739 4,360,856
Industrial supplies, processed . . . . . . . . 29,266,229 37,993,141 49,204,480 58,236,091 56,624,346 42,020,445
Parts and accessories for capital
goods . . . . . . . . . . . . . . . . . . . . . . . . 10,953,467 12,053,134 13,831,250 18,011,245 17,191,495 11,754,461
Parts and accessories for transport
equipment . . . . . . . . . . . . . . . . . . . . . 3,990,012 5,723,753 6,617,550 8,267,873 8,980,793 5,448,640
Fuels and lubricants, primary . . . . . . . . 5,188,131 8,359,681 10,923,734 11,008,146 13,322,222 10,433,031
o/w Crude oil(2) . . . . . . . . . . . . . . . 5,167,423 8,336,534 10,905,440 10,987,073 13,236,094 10,219,984
Fuels and lubricants, processed . . . . . . 6,749,794 11,233,281 18,519,887 18,405,384 17,706,610 11,861,406
o/w Oil products(2) . . . . . . . . . . . . 6,118,327 9,854,156 16,590,030 15,540,944 14,408,358 9,352,025
o/w Liquefied Petroleum Gas(2) . . 484,385 1,196,084 1,708,094 2,626,816 3,094,502 2,352,156
Total Raw materials and
auxiliary goods . . . . . . . . 63,242,770 85,140,528 113,151,281 126,732,417 127,649,765 92,344,735
Capital Goods
Capital goods (except transport
equipment) . . . . . . . . . . . . . . . . . . . . 13,291,147 17,399,877 22,301,038 26,642,473 25,541,302 19,079,423
Passenger motor cars . . . . . . . . . . . . . . 327,467 700,176 872,628 1,498,307 1,171,510 649,093
Other transport equipment,
industrial . . . . . . . . . . . . . . . . . . . . . . 5,789,475 5,476,323 7,316,357 7,945,543 4,196,809 2,286,541
Total Capital Goods . . . . . . . . . . 19,408,089 23,576,377 30,490,023 36,086,323 30,909,621 22,015,057
Other merchandise(3) . . . . . . . . . . . . . . . . . 491,887 699,868 724,016 743,455 714,679 573,622
Other goods(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . 22,626 83,657 71,097 43,071 32,398 18,614
Total, cif . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93,785,930 125,575,721 167,048,361 189,137,898 186,186,162 134,526,348

Source: Bank Indonesia

P Preliminary
(1) Data collected on a cost, insurance and freight basis.
(2) As a component of oil and gas imports.
(3) Consists of goods procured in ports by carriers.
(4) Consists of nonmonetary golds.
(5) Data based on BPM5.

With the exception of 2009 and 2013, imports of goods have grown steadily over the last five years. As a
proportion of total imports, raw materials and auxiliary goods have increased from 67.4% of total imports in
2009 to 68.6% in 2013, and capital goods have declined from 20.7% of total imports in 2009 to 16.6% in 2013.
The relative level of consumption goods has increased, from 11.3% of 2009 to 14.4% of the 2013. The
proportion of oil and gas imports increased over the same period from 17.5% in 2009 to 24.6% in 2013.
Indonesias imports tend to fluctuate in conjunction with exports, particularly in the raw materials and capital
goods categories as the imported goods form the building blocks for the production of exported products.

120
 In 2009, the value of total imports of goods decreased by 26.5% to U.S.$93.8 billion, compared to
U.S.$127.5 billion in 2008. Non-oil and gas imports decreased by 23.7% to U.S.$77.4 billion as domestic
demand declined. The sharp contraction of 37.1% in oil and gas imports accounted for a substantial portion of the
decline, driven by lower import prices, a decrease in demand for gas imports and a decrease in fuel imports. The
decrease in fuel imports was caused in part by reduced domestic economic activity and the government program
leading to the shift in fuel consumption to LPG and coal. The average price of oil in 2009 was U.S.$59.6 per
barrel, compared to U.S.$93.5 per barrel in 2008.

In 2010, total imports grew 33.9% to U.S.$125.6 billion, due to substantial growth in both non-oil and gas
imports and oil and gas imports. Non-oil and gas imports increased by 27.5%, reaching U.S.$98.7 billion from
U.S.$77.4 billion in 2009. Imports of consumer goods grew 51.4% to U.S.$16.1 billion from U.S.$10.6 billion in
2009, driven by strong domestic consumption. The robust growth in domestic industrial activities encouraged
imports of raw materials and auxiliary goods in 2010 to reach U.S.$85.1 billion, a 34.6% growth from 2009.
Meanwhile, the expansion of domestic investment and the escalation of production activities bolstered imports of
capital goods in 2010 to U.S.$23.6 billion, an increase of 21.5% from 2009. The increase in domestic fuel
consumption and higher oil prices led to a 64.0% increase in oil and gas import value, reaching U.S.$26.9 billion
in 2010 compared to U.S.$16.4 billion in 2009.

In 2011, total imports increased by 33.0% to U.S.$167.0 billion compared to 2010 due to more robust
domestic demand. Imports of consumer goods, raw materials, and capital goods grew by 40.7 %, 32.9% and
29.3%, respectively. Non-oil and gas imports increased by 27.8% to U.S.$126.1 billion from U.S.$98.7 billion in
2010. In addition, the increase in domestic fuel consumption and higher oil prices led to a 52.3% increase in oil
and gas import value, reaching U.S.$40.9 billion in 2011 compared to U.S.$26.9 billion in 2010.

In 2012, total imports amounted to U.S.$189.1 billion due to more robust domestic demand. Imports of
capital goods, consumer goods and raw materials grew by 18.4%, 12.9% and 12.0%, respectively. Non-oil and
gas imports increased by 15.8% to U.S.$146.0 billion from U.S.$126.1 billion in 2011. Meanwhile, oil and gas
imports increased by 5.4%, reaching U.S.$43.2 billion in 2012 compared to U.S.$40.9 billion in 2011.

In 2013, total imports contracted by 1.6% to U.S.$186.2 billion compared to 2012 following a moderation in
domestic demand. Imports of capital goods decreased by 14.3%, while imports of consumption goods and raw
materials increased at a rate of 5.3% and 0.7%, respectively compared to 2012. Non-oil and gas imports
decreased by 3.8% to U.S.$140.4 billion from U.S.$146.0 billion in 2012. Meanwhile, oil and gas imports
increased by 6.1% to U.S.$45.8 billion from U.S.$43.2 billion in 2012.

During the eleven months ended November 30, 2014, total imports amounted to U.S.$163.74 billion,
representing a 4.3% decrease as compared to the same period in 2013. Oil and gas imports decreased by 2.4%
(year-on-year), amounting to U.S.$40.1 billion, while non-oil and gas imports decreased by 5.0% (year-on-year),
amounting to U.S.$123.7 billion. Imports of capital goods, raw materials, and consumer goods decreased by
6.9%, 3.8%, and 3.6%, respectively, during the eleven months ended November 30, 2014 compared to the same
period in 2013.

121
 The following table sets forth Indonesias imports by country of origin for the periods indicated.

Imports by Place of Origin(1)

Nine months
ended
Year ended December 31, September 30,
2009(3) 2010 2011 2012 2013P 2014P
(in thousands of U.S. Dollars)
America
North America
United States of America . . . . . . . . . . . 6,586,945 7,548,457 9,189,605 9,701,647 8,966,943 6,212,679
Canada . . . . . . . . . . . . . . . . . . . . . . . . . 1,112,743 1,236,976 1,998,380 1,809,859 2,104,103 1,458,842
Other North America . . . . . . . . . . . . . . 0 5,759 15,931 1,094 110,717
Total North America . . . . . . . . . . 7,699,693 8,785,433 11,193,744 11,527,437 11,072,140 7,782,237
Central and South America
Argentina . . . . . . . . . . . . . . . . . . . . . . . 670,639 940,323 1,584,193 1,749,601 1,683,663 1,071,766
Brazil . . . . . . . . . . . . . . . . . . . . . . . . . . 1,056,705 1,682,645 1,789,701 1,934,842 2,205,400 1,841,692
Mexico . . . . . . . . . . . . . . . . . . . . . . . . . 139,791 203,240 394,537 566,649 516,890 149,011
Other Central and South America . . . . 648,099 538,632 858,496 561,260 600,191 412,479
Total Central and South
America . . . . . . . . . . . . . . . . . . 2,515,235 3,364,841 4,626,927 4,812,353 5,006,144 3,474,948
Total America . . . . . . . . . . . . 10,214,928 12,150,273 15,820,672 16,339,789 16,078,284 11,257,185
Europe
European Union
Netherlands . . . . . . . . . . . . . . . . . . . . . . 548,445 632,010 809,563 845,501 999,770 661,414
Belgium . . . . . . . . . . . . . . . . . . . . . . . . 438,239 535,476 575,936 618,879 652,619 448,999
United Kingdom . . . . . . . . . . . . . . . . . . 631,647 810,038 1,030,795 1,280,884 1,063,795 698,648
Italy . . . . . . . . . . . . . . . . . . . . . . . . . . . . 737,360 839,860 1,092,190 1,508,328 1,692,133 1,348,195
Germany . . . . . . . . . . . . . . . . . . . . . . . . 2,344,698 2,675,682 3,099,593 4,050,293 4,389,557 3,226,699
France . . . . . . . . . . . . . . . . . . . . . . . . . . 1,180,957 1,151,356 1,580,843 1,638,856 1,568,430 1,067,204
Spain . . . . . . . . . . . . . . . . . . . . . . . . . . . 221,544 305,056 391,004 521,227 573,305 458,609
Other European Union . . . . . . . . . . . . . 1,760,757 1,890,907 2,548,168 3,144,422 2,704,189 1,922,116
Total European Union . . . . . . . . . 7,864,956 8,840,385 11,128,092 13,608,391 13,643,796 9,731,885
Russia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 553,917 1,051,174 1,255,824 1,743,576 2,038,204 1,311,905
Turkey . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 509,919 286,089 547,384 409,525 1,409,107 971,435
Other Europe . . . . . . . . . . . . . . . . . . . . . . . . 1,129,767 1,380,960 1,541,811 1,679,654 1,717,109 1,019,896
Total Europe . . . . . . . . . . . . . . . . . 10,058,558 11,558,609 14,473,111 17,441,145 18,808,216 13,035,121
Asia and Middle East
ASEAN
Brunei Darussalam . . . . . . . . . . . . . . . . 584,756 673,587 1,072,833 480,349 677,923 607,057
Philippines . . . . . . . . . . . . . . . . . . . . . . 552,167 588,468 759,631 801,738 775,382 520,333
Cambodia . . . . . . . . . . . . . . . . . . . . . . . 3,361 3,996 7,324 11,053 17,752 15,690
Lao PDR . . . . . . . . . . . . . . . . . . . . . . . . 1,393 615 1,292 3,278 7,543 50,346
Malaysia . . . . . . . . . . . . . . . . . . . . . . . . 5,553,879 8,215,920 10,152,616 12,786,250 13,878,131 8,024,675
Myanmar . . . . . . . . . . . . . . . . . . . . . . . 26,755 31,617 69,558 63,359 72,997 99,864
Singapore . . . . . . . . . . . . . . . . . . . . . . . 15,357,687 15,852,262 23,132,138 27,435,575 26,687,954 18,810,956
Thailand . . . . . . . . . . . . . . . . . . . . . . . . 4,553,084 7,377,228 10,302,740 11,369,461 10,721,002 7,472,519
Vietnam . . . . . . . . . . . . . . . . . . . . . . . . 644,719 1,136,690 2,404,867 2,543,876 2,686,495 2,488,778
Total ASEAN . . . . . . . . . . . . . . . . 27,291,862 33,880,382 47,902,999 55,494,939 55,525,180 38,090,218
Hong Kong SAR . . . . . . . . . . . . . . . . . 1,492,327 1,759,224 2,338,465 1,897,323 1,956,494 1,395,563
India . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,203,315 3,261,720 4,239,683 4,310,220 3,960,489 3,141,855
Iraq . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,124 1,176 703 200 49 306
Japan . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,743,051 15,924,507 18,581,923 22,674,852 19,188,165 12,963,454
South Korea . . . . . . . . . . . . . . . . . . . . . 4,605,634 7,587,924 13,134,515 12,238,061 11,761,514 8,604,121
Pakistan . . . . . . . . . . . . . . . . . . . . . . . . 63,082 92,051 205,643 271,276 162,555 104,588
People Republic of China . . . . . . . . . . . 13,776,950 19,802,362 25,029,568 29,486,325 29,792,501 22,508,431
Saudi Arabia . . . . . . . . . . . . . . . . . . . . . 2,909,460 4,500,948 5,767,637 5,447,047 6,929,195 4,882,195
Taiwan, Province of China . . . . . . . . . . 2,317,396 3,086,137 4,123,106 4,731,457 4,488,642 2,817,933
Other Asia and Middle East . . . . . . . . . 2,885,751 3,939,008 5,257,022 6,879,661 5,840,125 6,188,725
Total Asia and Middle East . . . . . 67,289,952 93,835,441 126,581,269 143,431,361 139,604,909 100,697,389
Australia and Oceania
Australia . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,385,303 4,153,902 4,989,574 5,227,751 5,088,023 4,204,375
New Zealand . . . . . . . . . . . . . . . . . . . . . . . . 558,323 722,892 726,069 692,249 796,396 667,000
Other Australia and Oceania . . . . . . . . . . . . 209,025 55,020 44,223 69,803 86,192 30,691
Total Australia and Oceania . . . . . . . . . 4,152,651 4,931,814 5,759,866 5,989,802 5,970,611 4,902,066
Africa
South Africa . . . . . . . . . . . . . . . . . . . . . . . . . 348,963 523,646 689,390 650,838 624,337 365,709
Other Africa . . . . . . . . . . . . . . . . . . . . . . . . . 1,206,364 1,876,070 3,000,043 4,541,508 4,385,126 3,695,256
Total Africa . . . . . . . . . . . . . . . . . . . . . 1,555,327 2,399,716 3,689,433 5,192,346 5,009,463 4,060,966
Unclassified imports(2) . . . . . . . . . . . . . . . . . . . . 514,514 699,868 724,016 743,455 714,679 573,622
Total (cif) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93,785,930 125,575,721 167,048,361 189,137,898 186,186,162 134,526,348

Source: Bank Indonesia

122
P Preliminary.
(1) Data collected on a cost, insurance and freight basis.
(2) Consists of goods procured in ports by carriers.
(3) Data based on BPM5.

By country of origin, from 2009 to the nine months ended September 30, 2014, most of Indonesias imports
(approximately 62.9% of total imports in the nine months ended September 30, 2014) came from seven
countries: China, Singapore, Japan, the Republic of Korea, Malaysia, Thailand and the United States. Imports
from China accounted for 16.7% of total imports. Imports from Singapore, Japan, the Republic of Korea,
Malaysia, Thailand and the United States, were 14.0%, 9.6%, 6.4%, 6.0%, 5.6% and 4.6% of the total imports,
respectively.

In 2009, Singapore was the Republics largest source of imports, accounting for 16.4% of total imports,
followed by China (14.7%), Japan (10.4%), the United States (7.0%), Malaysia (5.9%) and the Republic of Korea
(4.9%). Taking each as a whole, ASEAN and Europe accounted for 29.1% and 10.7% of Indonesias total
imports, respectively.

In 2010, the Republics main countries of import origin were relatively similar to those in 2009. The share
of imports from China, however, increased sharply (15.8%), making China the largest country of import origin
ahead of Japan (12.7%), followed by Singapore (12.6%). Indonesias main import commodities from China were
raw materials and capital goods.

In 2011, China was the Republics largest source of imports, accounting for 15.0% of total imports,
followed by Singapore (13.8%), Japan (11.1%) and the Republic of Korea (7.9%). Taking each as a whole,
ASEAN and Europe accounted for 28.7% and 8.7% of Indonesias total imports, respectively.

In 2012, emerging countries were Indonesias largest import sources, including China (15.6%), Singapore
(14.5%), Malaysia (6.8%) and the Republic of Korea (6.5%). Imports from Japan accounted for 12.0% of
Indonesias total imports. Taking each as a whole, ASEAN and Europe accounted for 29.3% and 9.2% of
Indonesias total imports, respectively.

In 2013, Indonesias main trading partners were China, Singapore, Japan, Malaysia, the Republic of Korea,
and Thailand accounting for 16.0%, 14.3%, 10.3%, 7.5%, 6.3%, and 5.8% of total imports in 2013, respectively.

During the nine months ended September 30, 2014, 62.9% of Indonesias imports came from seven
countries: China, Singapore, Japan, the Republic of Korea, Malaysia, Thailand and the United States. Imports
from China accounted for 16.7% of total imports. Imports from Singapore, Japan, the Republic of Korea,
Malaysia, Thailand and the United States, were 14.0%, 9.6%, 6.4%, 6.0%, 5.6% and 4.6% of the total imports,
respectively.

Balance of Payments
Balance of payments figures measure the relative flow of goods, services and capital into and out of a
country as represented in the current account and the capital and financial account. The current account tracks a
countrys trade in goods and services, as well as income and current transfer transactions. The capital and
financial account covers all transactions involving capital transfers, acquisition or disposal of non-produced, non-
financial assets, and financial assets and liabilities. A balance of payments surplus indicates a net inflow of
foreign currencies, while a balance of payments deficit indicates a net outflow of foreign currencies.

123
 The following table sets forth the Republics balance of payments for the periods indicated.

Balance of Payments(1)
Nine months
ended
Year ended December 31, September 30,
2009* 2010 2011 2012 2013P 2014P
(in millions of US dollars)
Current account . . . . . . . . . . . . . . . . . . . . . 10,628 5,144 1,685 (24,418) (29,102) (19,681)
Goods(2) ....................... 30,932 31,003 33,825 8,680 5,833 4,779
Total exports (f.o.b.) . . . . . . . . . 119,646 149,966 191,109 187,346 182,089 132,082
Non-oil and gas exports . . . 99,030 121,307 153,042 151,775 148,501 109,713
Oil and gas exports . . . . . . 20,616 28,658 38,067 35,571 33,588 22,368
Total imports (f.o.b.) . . . . . . . . . (88,714) (118,963) (157,284) (178,667) (176,256) (127,303)
Non-oil and gas imports . . (73,470) (93,537) (118,567) (137,857) (132,959) (95,868)
Oil and gas imports . . . . . . (15,245) (25,426) (38,717) (40,810) (43,297) (31,435)
Services . . . . . . . . . . . . . . . . . . . . . . . (9,741) (9,791) (9,803) (10,564) (12,071) (7,670)
Primary income . . . . . . . . . . . . . . . . . (15,140) (20,698) (26,547) (26,628) (27,042) (20,608)
Secondary income . . . . . . . . . . . . . . . 4,578 4,630 4,211 4,094 4,178 3,818
Capital account . . . . . . . . . . . . . . . . . . . . . 96 50 33 51 45 12
Financial account . . . . . . . . . . . . . . . . . . . . 4,756 26,476 13,603 24,858 21,965 34,957
(a) Public sector . . . . . . . . . . . . . . . . . 11,205 13,262 (1,215) 7,030 9,730 12,752
Portfolio investment . . . . . . . . . 9,578 11,505 1,045 4,577 11,105 15,487
Assets . . . . . . . . . . . . . . . . . 0 (2,021) 218 (4,674) 848 1,381
Liabilities . . . . . . . . . . . . . . 9,578 13,526 827 9,251 10,257 14,106
Other investment . . . . . . . . . . . . 1,627 1,757 (2,260) 2,453 (1,376) (2,735)
Assets . . . . . . . . . . . . . . . . . 101 1 (2) (1) 0 0
Liabilities . . . . . . . . . . . . . . 1,526 1,756 (2,258) 2,453 (1,376) (2,735)
Loans . . . . . . . . . . . . . (1,195) (264) (2,040) (2,220) (527) (1,354)
Drawings . . . . . . 5,529 5,375 3,428 3,332 4,947 2,153
Repayments . . . . (6,724) (5,638) (5,468) (5,553) (5,474) (3,506)
Other liabilities . . . . . 2,721 2,020 (218) 4,674 (848) (1,381)
(b) Private sector . . . . . . . . . . . . . . . . (6,448) 13,214 14,818 17,828 12,236 22,205
Direct investment . . . . . . . . . . . 2,628 11,106 11,528 13,716 12,233 11,927
Assets . . . . . . . . . . . . . . . . . N/A (4,186) (9,037) (7,485) (11,112) (7,292)
Liabilities . . . . . . . . . . . . . . N/A 15,292 20,565 21,201 23,344 19,219
Portfolio investment . . . . . . . . . 758 1,697 2,762 4,629 (206) 8,622
Assets . . . . . . . . . . . . . . . . . (144) (490) (1,408) (793) (2,121) (608)
Liabilities . . . . . . . . . . . . . . 902 2,187 4,169 5,422 1,915 9,230
Financial derivatives . . . . . . . . . N/A (94) 69 13 (334) (152)
Other investment . . . . . . . . . . . . (9,835) 505 459 (530) 543 1,808
Assets . . . . . . . . . . . . . . . . . (12,103) (1,726) (6,753) (5,352) (3,427) (5,708)
Liabilities . . . . . . . . . . . . . . 2,268 2,231 7,212 4,822 3,970 7,517
Errors and omissions . . . . . . . . . . . . . . . . . (2,975) (1,327) (3,465) (275) (233) (2,450)
Overall balance . . . . . . . . . . . . . . . . . . . . . 12,506 30,343 11,857 215 (7,325) 12,838
Reserves and related items . . . . . . . . . . . . (12,506) (30,343) (11,857) (215) 7,325 (12,838)
Memorandum
Reserve asset position . . . . . . . . . . . . . . . . 66,105 96,207 110,123 112,781 99,387 111,164

Source: Bank Indonesia

* Data based on BPM5. Primary income and secondary income were previously income and current transfer, respectively.
P Preliminary.
(1) The use of (+) and (-) signs follows BPM5 whereby (+) means inflow and (-) means outflow. In financial account, (+) denotes increase in
liabilities or decrease in assets, while (-) represents increase in assets or decrease in liabilities.
(2) The calculation of export and import figures included in the balance of payments data compiled by Bank Indonesia differs in coverage
and timing from the data on export/import trade compiled by BPS.

124
 In 2009, due to strong performance in the current account and the capital and financial account, Indonesias
balance of payments posted a U.S.$12.5 billion surplus.

In 2009, the current account registered a surplus of U.S.$10.6 billion. Key to this improvement was an
increased surplus in the non-oil and gas trade balance and the oil and gas trade balance and a reduced deficit in
the oil and gas services account. The increased surplus in the non-oil and gas trade balance resulted from steeper
decline in non-oil and gas imports of 20.8% compared to the decline in non-oil and gas exports of 8.2%. The rate
of decline in non-oil and gas exports decreased from quarter to quarter, and there was a sustained increase in the
global market prices of leading primary export products and considerable demand for copper and coal from some
Asian economies. With respect to the oil and gas trade balance, an increased surplus arose from declining oil
imports in line with slowing economic growth and the government program to shift consumption of oil-based
fuels to gas and coal. The steep decline in imports caused reduced spending on freight services, which in part
narrowed the services deficit.

The capital and financial account in 2009 posted a surplus of U.S.$4.8 billion. This surplus was driven by
surpluses in direct investment and portfolio investment. Foreign direct investment experienced a smaller surplus
in 2009 due to the negative impact of the global economic recession on domestic investment. The surplus in
foreign portfolio investment arose largely from the issuance of foreign currency government bonds. In addition,
higher portfolio capital inflows, especially for SBIs purchased by foreign investors, were also triggered by the
strong and stable domestic macroeconomic conditions combined with attractive interest rates on Rupiah-
denominated instruments. The financial account also benefited from an additional allocation of SDRs from the
IMF of U.S.$2.7 billion, intended to bolster the reserve assets of IMF member countries, including Indonesia, as
part of the efforts to resolve the global economic crisis.

In 2010, Indonesias balance of payments recorded a surplus of U.S.$30.3 billion, a considerable increase
from the surplus in the preceding year of U.S.$12.5 billion. This surplus was contributed to by both the current
account surplus and capital and financial account surplus. In 2010, the current account posted a surplus of
U.S.$5.1 billion, supported by the non-oil and gas trade balance, gas trade balance, and current transfer balance.
Rising global commodity prices provided a boost to Indonesias exports. The current account surplus in 2010,
however, was lower than that in 2009 due to the increase of income payments and deficit of the oil trade balance.
The increase of income payments was encouraged by rising foreign capital investments. Meanwhile, the increase
of the oil trade balance deficit was mainly driven by increasing oil imports. Rising domestic fuel consumption
and world oil prices spurred oil imports, reaching U.S.$25.4 billion in 2010, compared to U.S.$15.2 billion in
2009.

The capital and financial account in 2010 posted a surplus of U.S.$26.5 billion, more than five times of the
previous years surplus of U.S.$4.8 billion. Major contributors to the financial account surplus were substantial
FDI and portfolio investment inflows despite sizeable outflows of portfolio investment in May, November, and
December 2010 due to the financial crisis in Europe. FDI inflows increased substantially, in line with the
expansion of domestic economy and the improvement of the investment climate. The surge in portfolio
investment was fuelled by excess liquidity in the global market, uncertain economic prospects in the U.S. and
Europe, and a favorable yield spread compared to other nations. The increase in portfolio investment inflows
were mainly from Rupiah-denominated government bonds purchased by foreign investors and the issue of
foreign currency government bonds. Other investment inflows in 2010 also strengthened mainly due to the
drawing on domestic bank deposits held overseas.

In 2011, Indonesias balance of payments registered a surplus of U.S.$11.9 billion due to surpluses in the
current account and the capital and financial account of U.S.$1.7 billion and U.S.$13.6 billion, respectively. The
current account surplus was due to robust export growth despite weak global demand. Similarly, the capital and
financial account surplus was due to higher inflows of FDI and an increase in private external debt, consistent
with the conducive Indonesian investment climate and stable macroeconomic conditions. On a quarterly basis,
the balance of payments maintained a positive performance during the first and second quarters of 2011, driven
in part by strong increases in export commodity prices and buoyant inflows of foreign portfolio investment.
However, in the third quarter of 2011, the balance of payments registered a deficit due to the spill-over effects of
the Eurozone debt crisis which triggered outflows of foreign portfolio investment. Pressures on the balance of
payments subsequently decreased in the fourth quarter as foreign portfolio inflows and foreign direct investment
inflows resumed, as well as higher drawing on private external debt. In the fourth quarter of 2011, the balance of
payments showed a deficit in its current account. This modest deficit (1.1% of GDP) was due to a steady
expansion in imports, in line with a strong domestic demand, with exports declining as a result of weak global
demand and a drop in commodity prices.

125
 As of December 31, 2010, the Republics official reserves stood at U.S.$96.2 billion (equivalent to
7.6 months imports and official debt repayments). As of December 31, 2011, these reserves stood at
U.S.$110.1 billion (equivalent to 6.7 months imports and official debt repayments).

In 2012, the balance of payments charted a U.S.$0.2 billion surplus. Slowing growth in world demand and
plunging export commodity prices in contrast to buoyant domestic demand and mounting consumption of oil-
based fuels led to a reduced non-oil and gas trade surplus and a widening oil and gas trade deficit. As a result, the
current account recorded an overall deficit of about 2.8% of GDP. Nevertheless, this deficit was offset by an
increase in the capital and financial account surplus over the previous year, enabling Indonesia to chart a balance
of payments surplus of U.S.$0.2 billion and maintain a sufficient level of international reserves. The increased
capital and financial account surplus was driven not only by portfolio investment, but also FDI, with an added
boost from the growing proportion of export earnings received through the domestic banking system. The
success in boosting inflows of foreign investment and curbing the current account deficit at no more than 3.0% of
GDP was due to the series of policies launched by Bank Indonesia and the Government, encompassing monetary
and macroprudential policy, exchange rate management, fiscal management, and improvements to the investment
climate. As of December 31, 2012, the Republics official reserves stood at U.S.$112.8 billion (equivalent to
6.2 months of imports and official debt repayments).

In 2013, the weakening global economy combined with the lack of support from the domestic economy led
to mounting pressure on Indonesias balance of payments. The global economic slowdown caused exports to
contract further while imports remained high due to demand from middle class consumers and high oil imports.
The slowdown in exports combined with the high demand resulted in a widening of the current account deficit.

The tapering of the monetary stimulus package by the U.S. monetary authority following improvements in
the U.S. economy has resulted in a gradual reduction in the supply of liquidity to emerging market countries,
including Indonesia. As a result, foreign capital inflows into Indonesia began to weaken, particularly from May
2013. Negative perceptions among foreign investors were exacerbated by the rising current account deficit and
inflation expectations. These conditions have had a negative impact on the capital and financial account surplus,
and thus the decline in Indonesias balance of payments performance persisted until September 30, 2013.

The negative pressure on Indonesias balance of payments intensified during the second and third quarters
of 2013. The current account deficit increased from 2.7% of GDP in March 2013 to 4.5% of GDP in June 2013.
In the capital and financial account, capital outflows increased in July 2013, triggered by global concerns over
the planned tapering by the U.S. monetary authority. Between the months of June to September 2013, the current
account still posted a sizeable deficit at 3.9% of GDP. Capital outflows continued through August 2013 as a
result of lingering concerns over tapering and the perceptions of a deteriorating current account, which put
additional pressure on the financial account.

In 2013, Bank Indonesia in conjunction with the Government introduced a range of policies designed to
bring down the current account deficit to a more sustainable level. The policies can be grouped into three major
areas. The first group addressed monetary policy, consisting of a number of measures implemented by Bank
Indonesia designed to influence interest rate policy, exchange rate policy and macro prudential policy. The
second group of policies were to address fiscal policy, such as the reduction to the fuel subsidies and tax
instruments for reducing imports. Both monetary policy and fiscal policy were directed towards managing
domestic demand in order to curb excessive imports. The third group of policies related to structural policies,
including those for improving the investment climate and measures to promote economic self-reliance, which in
turn will support the balance of payments in the long run.

The stabilization policies implemented by Bank Indonesia and the Government have successfully reduced
the current account deficit. As a result of these policies, current account deficit stood at 2.1% of GDP during the
last quarter of 2013. The reduction was achieved through a fall in imports following more moderate domestic
demand, an increase in exports in line with improved economic growth in advanced countries and a depreciation
in the exchange rate. The rebalancing of the current account deficit was further aided by increases in the capital
and financial account surplus resulting from corporate drawings of foreign borrowings, withdrawals from
offshore deposits held by domestic banks and stable inflows of direct investment. The surplus in the capital and
financial account was sufficient to finance the current account deficit, with the result that, in the last quarter of
2013, after three straight quarters of deficit, the balance of payments returned to surplus. This positive
development contributed to an increase in the international reserves position from U.S.$95.7 billion in the third
quarter of 2013 to U.S.$99.4 billion in the fourth quarter of 2013.

126
 Despite developments in the last quarter of 2013, the overall balance of payments in 2013 resulted in a
U.S.$7.3 billion deficit in contrast with the U.S.$0.2 billion surplus of 2012. The 2013 balance of payments
deficit reflects the influence of the current account deficit at U.S.$29.1 billion or 3.3% of GDP, up from the 2012
deficit of U.S.$24.4 billion or 2.8% of GDP, and a reduced capital and financial surplus from U.S.$24.9 billion in
2012 to U.S.$22.0 billion in 2013.

In the nine months ended September 30, 2014, the current account continued to improve, with the deficit
falling from U.S.$24.8 billion (3.7% of GDP) in the final nine months of 2013 to U.S.$19.7 billion (3.1% of
GDP) in the nine months ended September 30, 2014. The improvement resulted from an increased trade surplus,
in line with an increased non-oil and gas trade surplus amid a widening oil and gas trade deficit, and narrowing
deficits in the services accounts. The non-oil and gas trade surplus increased compared to the corresponding
period in 2013, as non-oil and gas imports contracted following moderation in domestic demand, as reflected in
the decrease in imports of consumption goods, raw materials, and capital goods. Meanwhile, non-oil and gas
exports contracted in nominal terms due to weakening global demand, especially from China. Declines in global
commodity prices and a temporary impact of the ban on the exports of raw minerals also played a role. On the oil
and gas front, the widening oil and gas trade deficit was attributable to high oil and gas imports amid decreasing
oil exports in line with the decline in oil production and global oil price. The narrowing deficit in the services
account was explained by reduced payments in transportation services, in line with the drop in imports of goods
and increased receipts of travel services, along with the rise in the number of foreign travelers visiting Indonesia.
On the other hand, the income account deficit grew, mainly due to increased interest payments on government
debt securities.

Improvement in Indonesias economic fundamentals led to an increase in foreign investment in Indonesia

during the nine months ended September 30, 2014. The capital and financial account posted a U.S.$35.0 billion
surplus, a significant increase from U.S.$13.2 billion in the corresponding period in 2013, primarily in portfolio
instruments. The increased inflows of foreign portfolio investments, in addition to the impact of increases in net
foreign buying in rupiah-denominated portfolio instruments, was supported by the Governments steps to issue
foreign currency bonds as a source of fiscal financing. The capital and financial account surplus also benefitted
from increased FDI inflows compared to the same period in 2013.

Indonesias overall balance of payments in the nine months ended September 30, 2014 recorded a surplus of
U.S.$12.8 billion led by improvement in the current account and the capital and financial account surplus. This
surplus in turn increased international reserves from U.S.$99.4 billion as of December 31, 2013 to
U.S.$111.2 billion as of September 30, 2014. As of November 30, 2014 international reserves decreased slightly
to U.S.$111.1 billion.

Financial System
Liquidity Supports, Government Guarantee and Deposit Insurance
In September 2004, the Government enacted the law establishing Indonesia Deposit Insurance Corporation
(IDIC). The IDIC became fully operational, as stipulated in the law, on September 22, 2005. The IDICs
mandates are to protect bank depositors and actively promote financial stability. The prevailing IDIC coverage is
up to Rp2 billion for each depositor in any one bank. The IDIC membership is compulsory for every bank
conducting business in Indonesia. The IDIC will pay, in accordance with its procedures, deposit insurance claims
when a member bank has its license revoked by the Indonesia Financial Service Authority (previously by Bank
Indonesia). This law was subsequently amended by Government Regulation in lieu of Law No. 3 of 2008, which
was re-affirmed by Law No. 7 of 2009. The amendment provides for an adjustment in the maximum amount of
deposit insured in the event of a crisis that can potentially decrease public trust in the banking system or affect
the stability of the financial system.

From the commencement of its operations to September 30, 2014, the IDIC has liquidated 60 failed banks
that had their licenses revoked, including one commercial bank and 59 rural banks. The total deposits of the 60
failed banks were Rp1.27 trillion (approximately U.S.$106 million). Based on verification conducted by IDIC,
the total amount of deposits eligible for payout was Rp760 billion (approximately U.S.$63 million). The IDIC
was also assigned to rescue one commercial bank (Bank Mutiara) which failed during the financial crisis in 2008.
IDIC sold Bank Mutiara to J-Trust on November 20, 2014.

The Government believes that the global economic and financial crisis has thus far not had a significant
impact on the domestic banking system. For a discussion of recent action by Bank Indonesia in response to recent
changes in market conditions, please see Monetary Policy.

127
PT Perusahaan Pengelola Aset (Persero) (PT PPA)
PT PPA was established on February 27, 2004 based on Government Regulation No. 10 of 2004 regarding
the Establishment of Public Company (Persero) in Asset Management Field. The purpose and objective of the
establishment of PT PPA is to undertake state asset management, succeeding the Indonesian Bank Restructuring
Agency (IBRA), for and on behalf of the Ministry of Finance.

As a corporate entity, PT PPA is responsible to the Ministry of State-Owned-Enterprises as a shareholder.

As PT PPA manages some remaining assets previously owned by IBRA, it is accountable to the Ministry of
Finance as the owner of the assets.

On September 4, 2008, the Government issued Government Regulation No. 61 of 2008 regarding the
Amendment of Government Regulation No. 10 of 2004 on the Establishment of Public Company (Persero) in
Asset Management Field (PP 61/2008). With PP 61/2008, the purpose and objectives of PT PPA were revised to
restructure and/or revitalize state-owned-enterprises, to invest and to manage the assets of state-owned-
enterprises, and to manage ex IBRA assets.

From 2004 to September 30, 2014, PT PPA collected Rp20.76 trillion in proceeds from the management of
assets previously owned by IBRA (including the interest of fund placement) and has submitted Rp17.78 trillion
to the Government. In addition, PT PPA submitted Rp1.064 billion as dividends to the Government from profits
earned from 2004 to 2013 and Rp1,004 billion in taxes from 2004 to September 30, 2014.

Continuing its duties in 2013, PT PPA conducted restructuring and/or revitalization activities for 13 state-
owned-enterprises until the end of July 2014.

As of September 30, 2014, PT PPA had sold, on behalf of the Ministry of Finance: (i) its majority
ownership interests in PT Bank Permata Tbk to strategic investors; (ii) minority interests in PT Bank Danamon
Indonesia Tbk, PT Bank Permata Tbk, PT Bank Niaga Tbk, PT Bank Central Asia Tbk, PT Bank Internasional
Indonesia Tbk, PT Bank Lippo Tbk and PT Bank Pan Indonesia Tbk to investors through market placements;
(iii) shares in PT Bank Tabungan Pensiunan Nasional Tbk through an initial public offering; (iv) shares and
credit in PT Dipasena Citra Darmaja and PT Bali Nirwana Resort through an open tender process; and (v) other
government shares and rights in national banks and other companies and property assets.

128
 The following table sets forth information regarding the divestment of ex-IBRA assets by PT PPA during
the period from 2004 to September 30, 2014.

Divestments by PT PPA
Equity interest Proceeds to the
Assets Month of divestment divested Government
(percentages) (in trillions of Rupiah)
PT Bank Permata Tbk . . . . . . . . . . . . . . . . . . . . . . . . . . . November 2004 51.0 2.78
December 2004 20.0 1.16
September 2006 25.9 1.75
March 2013 0.2 0.03
PT Bank Danamon Indonesia Tbk . . . . . . . . . . . . . . . . . . November 2004 10.0 1.74
August 2005 10.5 2.68
PT Bank Niaga Tbk . . . . . . . . . . . . . . . . . . . . . . . . . . . . . December 2004 16.3 0.59
April 2005 5.2 0.22
PT Bank Internasional Indonesia Tbk . . . . . . . . . . . . . . . January 2005 15.3 1.35
November 2006 5.2 0.51
December 2008 0.3 0.06
PT Bank Central Asia Tbk . . . . . . . . . . . . . . . . . . . . . . . . September 2005 5.0 2.19
PT Bank Lippo Tbk(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . November 2006 0.0(1) 0.00
November 2008 1.7 0.20
PT Bank Pan Indonesia Tbk(2) . . . . . . . . . . . . . . . . . . . . . March 2013 0.0(2) 0.0003
PT Jasa Marga (Persero) Tbk Bonds . . . . . . . . . . . . . . . . December 2006 (3) 0.04
PT Dipasena Citra Darmaja . . . . . . . . . . . . . . . . . . . . . . . May 2007 100.0 0.07
PT Bali Nirwana Resort . . . . . . . . . . . . . . . . . . . . . . . . . . July 2007 77.3 0.05
PT Bank Tabungan Pensiunan Nasional Tbk . . . . . . . . . March 2008 28.4 0.76
PT Asuransi Tugu Kresna Pratama . . . . . . . . . . . . . . . . . June 2008 35.0 0.01
PT Babcock Wilcox Indonesia . . . . . . . . . . . . . . . . . . . . . June 2008 51.0 0.01
Property Auction Program I . . . . . . . . . . . . . . . . . . . . . . . June 2008 (4) 0.04
Property Auction Program II . . . . . . . . . . . . . . . . . . . . . . December 2008 (4) 0.08
PT Bank Permata Tbk (Rights) . . . . . . . . . . . . . . . . . . . . November 2010 (5) 0.0004
December 2012 (5) 0.0003
PT Tugu Pratama Indonesia . . . . . . . . . . . . . . . . . . . . . . . December 2010 17.5 0.30
PT Bank Maybank Syariah Indonesia . . . . . . . . . . . . . . . December 2011 3.2 0.04
PT Tugu Reasuransi Indonesia . . . . . . . . . . . . . . . . . . . . June 2013 19.75 0.05
Source: PT PPA
(1) PT PPA divested 0.000015% of PT Bank Lippo Tbk.
(2) PT PPA divested 0.0054% of PT Bank Pan Indonesia Tbk.
(3) Sale of government-owned bonds of PT Jasa Margo (Persero) Tbk. The transaction did not involve divestment of any equity interest by
PT PPA.
(4) This was a property auction program and did not involve divestment of any equity interest by PT PPA.
(5) This was a divestment of rights (issued by PT Bank Permata Tbk) as a consequence of PT PPA/Minister of Finances decision not to
exercise its rights as a shareholder to buy new shares on the PT Bank Permata Tbks rights issue.

Strengthening the Banking System

The Governments policies for the banking sector since the Asian financial crisis have emphasized the
recovery and strengthening of the banking system. Steps taken towards recovery include government blanket
guarantees, the exchange offer program, the recapitalization program and loan restructuring. Strengthening
measures implemented during the same period include improving the countrys financial infrastructure,
promoting good corporate governance and improving the bank regulatory and supervisory framework.

The structural resilience of financial institutions has changed dramatically compared to what it was during
the Asian financial crisis of 1997. The most prominent feature of the changes comes from the strengthened risk
management and good governance in the financial sector to mitigate risk. Banks are regularly encouraged to
enhance the quality of their risk management and governance, not only to meet Bank Indonesias regulations but
also to nurture market discipline.

From the standpoint of the authorities, significant shifts have also occurred with respect to the supervisory
framework in the financial system. The authorities implement risk mitigation by strengthening micro and macro-

129
prudential surveillance. Micro-prudential surveillance is performed on an individual bank or financial institution
in order to ensure the fulfillment of prudential regulations through on-site and off-site supervision. Additionally,
macro-prudential surveillance also aims to ensure that prudential regulations are adhered to at the industry level
as an aggregate.

Under a framework of strengthening micro-prudential surveillance, a number of measures have been

introduced by Bank Indonesia to bolster and improve surveillance in order to better anticipate the symptoms of
troubled banks on a risk basis, as well as enhance the quality of human resources through training, attachments
and certification programs.

In addition, improvements to the tools and methodologies used in surveillance are ongoing in order to
reinforce macro-prudential aspects, among others, stress testing, probability of default analysis, transition
matrices and other early warning mechanisms. The creation of the financial system safety net also assists
authorities to mitigate potential systemic risks that might arise.

As a follow-up to the banking restructuring program and to help prepare banks to address the challenges of
globalization, in early 2004, Bank Indonesia unveiled a blueprint for the countrys banking sector reform
program known as the Indonesian Banking Architecture (the Architecture). The Architecture sets forth a vision
to enhance the strength, soundness and efficiency of the Indonesian banking system for financial stability and to
promote national economic growth, based on six principles: (i) a healthy banking structure; (ii) an effective
regulation system; (iii) an effective and independent supervisory system; (iv) a strong banking industry;
(v) adequate infrastructure; and (vi) robust customer protection. The review of policies within the Architecture
accommodates the current global, regional and local dynamics, the development of all pillars in the Architecture
and is part of the preparations toward implementation of the ASEAN Economic Community in the financial
sector in 2020 and enhances banking contributions in accelerating Indonesian economic growth.

Bank Indonesia Regulation No. 14/26/PBI/2012 dated December 27, 2012 concerning Bank Activities and
Office Network Based on Tier-1 Capital, is a policy derived from the principle of strengthening the resilience of
the Banking Industry. The review on the structure of the national banking industry is still an ongoing process.
Bank Indonesia is currently preparing The New Indonesian Banking Architecture as guidance for the banking
industry for the five to ten years ahead toward ASEAN Integration framework and the implementation of the
Masterplan of Indonesian Economic development.

In addition, based on the current structure of the national banking industry and in order to improve good
corporate governance practices in the banking industry, on July 13, 2012 Bank Indonesia issued Bank Indonesia
Regulation No. 14/8/PBI/2012 regarding Share Ownership of Commercial Banks. The share ownership structure
of a bank is largely determined based on the type of shareholders. Exemptions may be given to banks that have
good ratings in Bank Indonesias rating system and a good corporate governance rating system.

Bank Indonesia stipulated in 2005 and 2007 that a commercial bank must have a minimum Tier One Capital
of Rp80 billion by December 31, 2007, and thereafter at least Rp100 billion by December 31, 2010. All banks in
the banking sector have fulfilled this condition. Following the recent financial crisis and to support the future of
economic growth, the strengthening of quality and quantity of capital is deemed necessary in order for the
banking system to become more resilient and effective in its intermediation function.

Bank Indonesia has undertaken numerous reforms to advance the goals of the Architecture since its creation
in 2004. As part of its efforts to improve the regulatory system and promote independent and effective
supervision, Bank Indonesia has issued rules providing for increased supervision of banks risk management
policies and the development of an early warning system, strengthened the certification requirements for Bank
Indonesias examiners involved in risk management and established a debtor information system as well as a risk
management certification agency jointly supervised by Bank Indonesia and the National Agency for Professional
Certification.

To strengthen the overall structure of the banking system, Bank Indonesia has issued regulations governing
the treatment of foreign debt and establishing principles for the issuance of asset-backed securities, created a
uniform loan classification system to regulate asset quality, revised the methods of weighting risk for loans
extended to small-scale enterprises, small mortgages and civil service and military employees and retirees, and
redefined and adjusted legal lending limits and related party transaction restrictions applicable to banks. Bank
Indonesia has also worked to respond to changes in the banking environment, by providing greater access for
Islamic banking in conventional commercial banks and authorizing the special treatment of loans provided to

130
people affected by natural disasters in Aceh, North Sumatra and Yogyakarta. Following several natural disasters
in 2014, OJK through a decree of the Board of Commissioners extended the special treatment of loans granted by
banks in the designated disaster zones affected by the eruption of Mount Sinabung, the Manado flash floods and
the eruption of Mount Kelud.

To improve internal controls at banks, Bank Indonesia has strengthened the certification requirements for
commercial bankers involved in risk management and implemented stronger good corporate governance rules for
commercial banks.

To protect customers, Bank Indonesia has required banks to provide greater transparency and information
on banking products and restricted the use of bank customers personal data. In relation to customer protection,
OJK has issued regulation POJK No. 1/POJK.07/2013 concerning Consumers Protection in the Financial Sector
to ensure customers receive accurate, fair and clear information. In 2014, OJK regulation No. 1/POJK.07/2014
concerning Alternative Institutes for Dispute Resolution in the Financial Services Sector (LAPS) was released to
regulate the availability of alternative dispute resolution mechanisms in the financial sector in order to increase
consumer confidence in financial services institutions. To empower bank customers, Bank Indonesia issued rules
requiring banks to establish standard customer complaint mechanisms and dispute resolution forums for
customer disputes in addition to other forms of non-judicial dispute resolution.

In 2012, Bank Indonesia implemented several new regulations designed to promote good corporate
governance within the Indonesian banking sector, to foster sustainable growth and to ensure the financial
soundness of banks:
PBI No.14/8/PBI/2012 concerning the new Bank Ownership Rules which sets out the requirements that
commercial banks must abide by in relation to their individual structures and shareholding;
PBI No.14/24/PBI/2012 concerning the single presence policy;
PBI No.14/26/PBI/2012 concerning Business Activity and Office Network in accordance with a banks
core capital rating; and
PBI No.14/15/PBI/2012 concerning the Assessment of Commercial Bank Asset Quality used to
regulate the loan classification system.

Also in 2007, Bank Indonesia focused on personnel improvement for bank supervision and regulation. To
improve competency levels, Bank Indonesia now requires supervision and regulation personnel to complete
training courses and pass examinations measuring their expertise in their relevant areas.

In 2007, Bank Indonesia developed a road map for the implementation of the New Basel Capital Accord
(Basel II) standards. Since December 2012, the Basel II framework has been fully implemented in Indonesia. By
implementing Basel II, Bank Indonesia seeks to strengthen risk management of the banks to make them more
resilient to domestic, regional and international shocks. Overall, the Basel II implementations are as follows:
Pillar 1 (minimum capital requirement). Bank Indonesia completely implements the Basel II approach
for credit risk, market risk, and operational risk. For credit risk, according to Circular Letter
No. 13/6/DPNP, starting January 2012, banks are to use the Standardized Approach for calculating the
risk weighted assets (RWA). To support the implementation of this policy, Bank Indonesia also
amended the regulation concerning external credit rating agencies through the issuance of Circular
Letter No. 13/31/DPNP relating to the rating agencies and the recognition of ratings by Bank
Indonesia. In this amendment, Bank Indonesia increased the criteria for the recognition of external
credit rating agencies to ensure the independency, capability, and objectivity of rating agencies in their
rating process. Bank Indonesia also published a list of recognized credit rating agencies on the Bank
Indonesia website. With respect to market risk, from 2007 onwards capital charge has been calculated
using the Standardized Method and Internal Model (subject to BI approval) through the issuance of
Circular Letter No. 14/21/DPNP and Circular Letter No. 9/31/DPNP. Finally, with respect to
operational risk, from January 2010 onwards banks have used the Basic Indicator Approach (BIA) in
calculating the RWA. This calculation started with a 5.0% multiplication factor of the banks gross
income and increased to 10.0% as of July 2010 and 15.0% as of January 2011.
Pillar 2 (supervisory review process). Bank Indonesia implemented a new risk-based supervisory
framework, the Risk Based Bank Rating (RBBR) in 2010. This framework, among others, sets a more
comprehensive approach in analyzing a banks risk profile. Additionally, Bank Indonesia issued a new
regulation in November 2012 concerning the minimum capital adequacy requirement which

131
 commensurates with bank risk profile. Bank Indonesia requires banks to provide additional capital
according to their risk profile (capital add on) through the issuance of Bank Indonesia regulation
No. 14/18/PBI/2012 regarding Banks Minimum Capital Requirement.
Pillar 3 (market discipline). In terms of market discipline, Bank Indonesia issued a regulation
concerning disclosure (Circular Letter No. 14/35/DPNP), as required in Pillar 3 of Basel II, on
December 2012. The disclosure requirement is quite comprehensive and will be a part of the Banks
Annual Report.

On September 24, 2008, Bank Indonesia issued Bank Indonesia Regulation No. 10/15/PBI/2008 relating to
minimum capital requirement of commercial banks (BI Regulation 10/15). BI Regulation 10/15 was
subsequently revoked by Bank Indonesia Regulation No. 14/18/PBI/2012 on Minimum Capital Adequacy
Requirements for Commercial Banks. To enable the establishment of a sound banking system that is capable of
growing and competing both domestically and internationally while complying with Basel III standards, Bank
Indonesia issued Bank Indonesia Regulation No. 15/12/PBI/2013 concerning the Minimum Capital Requirements
for Commercial Banks. The new regulation will come into force on January 1, 2015.

Under Perpu No. 2 of 2008 on Second Amendment to Law No. 23 of 1999, Bank Indonesia is authorized to
give short-term credit or financing based on Sharia principles of up to 90 days to any bank, subject to certain
criteria to be set by Bank Indonesia. A beneficiary bank is required to give security of at least the value of such
credit or financing. Perpu No. 2 of 2008 was later enacted as Law No. 6 of 2009.

On December 22, 2011, Bank Indonesia issued Circular Letter No. 13/31/DPNP relating to the rating
agencies and recognition of ratings by Bank Indonesia.

As of September 30, 2014, total banking assets were Rp5,011.8 trillion, consisting of assets of commercial
banks of Rp4,932.9 trillion and assets of rural credit banks of Rp78.8 trillion.

The health of Indonesias banking sector has improved significantly since the Asian financial crisis. See
Bank Assets and Liabilities and Non-Performing Loans.

Bank Indonesia continuously seeks to improve risk management policies in Indonesias banking system.
Bank Indonesia introduced new risk management regulations in 2009, including:
Bank Indonesia Regulation No. 11/25/PBI/2009 dated July 1, 2009, which expands previous
regulations on risk management and requires banks to maintain risk management information systems
and internal controls with respect to credit, market, liquidity, operational, legal, reputational and other
risks. The regulation requires banks to have written policies and procedures to address such risks
arising from the introduction and management of new products and activities. It also promotes
transparency in products and activities for customers benefit.
Bank Indonesia Regulation No. 11/26/PBI/2009 dated July 1, 2009 regarding Prudential Principles in
Structured Products Activities for Commercial Banks, which was introduced in response to concerns
regarding structured finance products during the recent financial crisis. The regulation limits the types
of structured products banks may issue and market, requires them to obtain Bank Indonesia approval
before issuing such products and imposes restrictions on the marketing of such products such as
disclosure requirements and mandatory cooling off periods before offerees of such products are
allowed to make purchases. The regulation classifies bank customers according to their sophistication
and requires banks to implement procedures to identify customers sophistication and risk appetite.
Bank Indonesia Regulation No. 11/30/PBI/2009 dated July 7, 2009 regarding Intraday Liquidity
Facilities based on Sharia Principles and Bank Indonesia Regulation No. 10/29/PBI/2008 dated
November 14, 2008 regarding Intraday Liquidity Facilities for Commercial Banks as amended by Bank
Indonesia Regulation No. 12/13/PBI/2010 dated August 4, 2010, which govern the use of and
eligibility to use intraday liquidity facilities by Sharia-compliant banks and commercial banks,
respectively.

Bank Indonesia introduced a number of measures on June 16, 2010 to increase the central banks toolset to
manage liquidity as well as to encourage banks to conduct more transactions in the secondary market in the form
of demand creation. By implementing these policies, Bank Indonesia hopes to shift the maturity profile of
transactions between Bank Indonesia and banks into a longer tenor in order to absorb unnecessary excess

132
liquidity. The new policies are expected to enhance the effectiveness of monetary policy, maintain macro
stability and strengthen the momentum of economic recovery. The policy package covers the enhancement of
instruments and regulations both in the Rupiah and foreign exchange money markets to further strengthen
monetary management, improve bank prudential aspects, and deepen the financial markets. The policies include:
Widening of the corridor of the overnight interbank money market rate. This policy is intended to
further develop the interbank money market by encouraging banks to frequently be involved in
interbank money market in fulfilling short-term liquidity needs prior to engaging monetary instruments
provided by Bank Indonesia.
Revisions of regulations on banks foreign exchange net open positions (NOP). The policy is intended
to buttress the deepening of the domestic foreign exchange market while keeping in consideration bank
prudential aspects. While the on balance sheet NOP maximum limit of 20.0% of capital is abolished,
the overall NOP is still maintained at 20.0% of capital.
Imposing a minimum of a one-month holding period for SBI both in primary and secondary markets.
This policy is imposed to both resident and non-resident investors and is intended to lengthen the
ownership and the transaction period of SBI in the secondary market. Nevertheless, to fulfill its short-
term liquidity needs, a bank holding SBI can conduct repo transaction with Bank Indonesia which has
been available thus far. In April 2011, Bank Indonesia extended the one-month holding period to a six-
month holding period in response to the increasing amount of capital inflows and as a tool to mitigate
the risks of large and sudden capital reversal.
Introduction of a non-securities monetary instrument in the form of a term deposit. Term deposit is a
liquidity management instrument of Bank Indonesia without an underlying debt security. This
instrument is non-transferable, but may be redeemed prior to maturity (early redemption) subject to
certain requirements.
Issuance of the nine- and 12-month SBI. This policy measure will support the deepening of the
domestic money market in terms of the availability of instruments, maturity profile, and the formation
of a short-term interest rate structure.
Implementation of the tripartite repurchase (repo) of government debt securities (SBN). The tripartite
repo SBN is Bank Indonesias liquidity management activity through reverse repo transaction with
underlying assets in the form of SBN acquired from qualified parties such as pension funds and
insurances.

In response to the steadily expanding involvement of banks in activities related to bancassurance and
offshore products, banks need to strengthen the effective application of risk management through the
implementation of prudential principles and protection of customer interests. In this regard, Bank Indonesia
issued several regulations such as Bank Indonesia Regulation No. 12/9/PBI/2010 concerning Prudential
Principles in Conducting Agency Activities for Offshore Financial Products by Commercial Banks and Circular
Letter No. 12/35/DPNP concerning Application of Risk Management for Banks Conducting Marketing
Cooperation Activities with Insurance Companies (Bancassurance).

On September 3, 2010, Bank Indonesia announced a new policy regarding the statutory reserve requirement
(SSR) in Rupiah. Bank Indonesia decided to raise the primary statutory reserve requirement for Rupiah funds to
8.0% and to introduce a loan-to-deposit ratio (LDR) based reserve requirement. This policy is intended to curb
mounting inflationary pressure through management of excess banking liquidity. As the new reserve requirement
has been set in consideration of the present condition of banking liquidity, it does not diminish the capacity of
banks to pursue credit expansions in line with existing bank business plans while upholding prudential banking
principles. Based on this new policy, the computation of the Rupiah reserve requirement will be: 8.0% primary
reserves + 2.5% secondary reserves + LDR-based reserves.

The Rupiah primary reserve requirement has been raised from 5.0% to 8.0% of Rupiah depositor funds. The
secondary reserve requirement at 2.5% of Rupiah depositor funds remains unchanged. The LDR-based reserve
requirement is established with a range that will promote the banking intermediation function while upholding
prudential banking principles. The LDR target range is set with a lower limit at 78.0% and an upper limit at
100.0%. Banks with an LDR that falls outside this range will face disincentives as follows: (i) banks with an
LDR below the lower limit will face an additional 0.1 SSR from Rupiah deposits for each 1.0% that exceeds the
upper limit; (ii) banks with an LDR exceeding the upper limit and with a capital adequacy ratio (CAR) below
14.0% will face an additional 0.2 SSR from Rupiah deposits for each 1.0% short of the target; and (iii) banks
with an LDR in excess of the upper limit but which maintain CAR of 14.0% or above and will not face any

133
disincentives. The new primary reserve requirement became effective on November 1, 2010, with a transition
period of about two months. The new LDR-based reserve requirement came into force on March 1, 2011,
following a transition period of six months.

Under PBI No. 15/7/PBI/2013, dated September 26, 2013, Bank Indonesia announced new policies
regarding the minimum secondary reserves and LDR-based reserve requirements. The new policies increased the
minimum secondary reserve from 2.5% to 3.0% of third party funds from October 1, 2013 to October 31, 2013,
3.5% of third party funds from November 1, 2013 to December 1, 2013 and 4.0% of third party funds from
December 2, 2013 onwards. The new LDR target range has been reduced with the upper limit being lowered
from 100.0% to 92.0% with an unchanged lower limit at 78.0% and was effective from December 2, 2013. The
disincentives to banks that do not apply the new requirements remain unchanged.

OJKs introduction of the bank supervisory role as of December 31, 2013 resulted in Bank Indonesia issuing
PBI No. 15/15/PBI/2013 on Minimum Statutory Reserves in Rupiah and Foreign Exchange of Conventional
Banks to replace PBI No. 12/19/PBI/2010 as last amended by PBI No. 15/7/PBI/2013. The minimum statutory
reserve and LDR-based reserve rates remain unchanged from those previously regulated under PBI No. 15/7/PBI/
2013. However, under this regulation, Bank Indonesia with approval from OJK, may allow for those banks
undertaking consolidation or mergers to benefit from a 1.0% reduction in the minimum primary Rupiah reserve
requirement of 8.0% for the period of one year from the effective date of such merger or consolidation activity.
Bank Indonesia may conduct joint investigations with OJK or utilize OJK investigation results, or conduct its
own direct investigations into banks to ensure compliance with the minimum statutory reserve regulation.

Bank Indonesia Monetary Policy

Learning from the experiences gained during 2013 and considering the relevant risk factors, Bank Indonesia
will continue to focus its efforts on maintaining economic and financial system stability through a combination of
policies, such that:
Monetary policy will be geared towards achieving targeted inflation rates and reducing the current
account deficit to more sustainable levels through a combination of interest rate and exchange rate
stabilizations. Reinforcing monetary operations, managing the flow of foreign exchange and financial
market deepening to support the effectiveness of policy rate and exchange rate transmission, while
simultaneously improving the structure and capacity of the financial system to provide financing for
economic development are key steps to be taken.
Macroprudential policy will remain focused on mitigating systemic risk in the financial sector as well
as managing credit and liquidity to promote macroeconomic stability management. Bank Indonesia
will also increase financial inclusion by broadening public access to banking services.
Payment system policy will continue to encourage the development of a more secure, efficient and
seamless domestic payment system.

These policies will be supplemented through policy coordination with the Government and other relevant
financial sector authorities. Following the Board of Governors critical assessments of the economic performance
in 2010 and its outlook and challenges in 2011 and 2012, Bank Indonesia at the end of December 2010
announced a set of new policy measures in the monetary and banking areas to further strengthen monetary and
financial stability. To safeguard the macroeconomic stability while fostering sustained robust economic growth,
Bank Indonesia continues to adopt prudent and consistent monetary and banking policies. The new policies
encompass five key aspects as follows:
Policies to strengthen monetary stability. Bank Indonesia will direct the BI Rate to be consistent with
the achievement of the inflation target set at 4.5% ( 1.0%) in 2013, 4.5% ( 1.0%) in 2014 and 4.0%
( 1.0%) in 2015, while cautiously assessing the risks of increasing inflation pressures going forward.
This policy will be accompanied by a number of new measures to further strengthen the monetary and
macro-prudential policies that have been implemented in 2010, and also to normalize the policies that
were adopted during the 2008 crisis as the monetary and financial conditions have improved at present.
The new policies include reinstating the limit on the daily balance of a banks short term external debt
and revocation of Bank Indonesias direct supply of foreign exchange to domestic corporations.
Policies to promote a banks intermediation function. These policies are intended to further promote
banking intermediation more efficiently and transparently and to widen the access of the poor to

134
 financial services. The new policies include: applying an operating standard for administrating
mortgages securitization, introducing a disclosure requirement on the prime lending rate to the public,
calculating risk weighted assets relating to commercial bank retail credit risk and small and medium
enterprises, and licensing, regulation and supervision of private credit bureaus.
Policies to strengthen banks resiliency. These policies promote a strong and sound banking system
through transparency management based on good governance. The new policies cover: improvements
of regulation based on the fit and proper test, strengthening the commercial banks compliance
functions, implementation of risk weighted assets calculations for credit risk using a standardized
approach for commercial banks, implementing risk management for banks involved in joint marketing
with insurance companies, regulation on asset quality for Sharia banks, Sharia business units, and
Sharia rural banks, improvements in regulation on restructuring of financing for Sharia banks and
Sharia business units, enhancements on maximum legal financing limits for Sharia rural banks,
amendments of license regulations on the conversion of commercial banks to rural banks and
promotion of highly competitive rural banks with good corporate governance.
Strengthening macro-prudential policy. These policies are aimed to strengthen monetary and financial
system stability through the implementation of macro prudential surveillance by Bank Indonesia. The
new policies include: improving the regulation and use of information on a banks business plan,
raising the reserve requirement ratio for foreign currency deposits and normalizing the regulation on
the short term funding facility of Bank Indonesia to commercial banks.
Strengthening supervisory functions. The new policies are intended to strengthen the effectiveness of
Bank Indonesias banking supervision, particularly the quality of early warning systems and its relation
to the macro-prudential supervision. The policies include: enhancement in the risk-based banking
supervision system, determination of banks supervisory status and further remedial actions and
improvements in the assessment of bank soundness ratings based on risks.
In addition to the above policies to strengthen monetary and financial system stability, Bank Indonesia also
seeks to mitigate the economic impact of natural disasters in a number of areas through special treatment for
loans extended to disaster areas. This policy is expected to support the economic recovery in areas such as
Merapi, Wasior and Mentawai. The policy was enacted based on the Governor of Bank Indonesia Decree issued
on December 8, 2010. In 2014, the Financial Services Authority (Otoritas Jasa Keuangan or OJK) issued three
decrees of the Board of Commissioners concerning the special treatment for loans extended by banks to disaster
areas:
KDK No. 2/KDK.03/2014 concerning the designation of several districts in Karo Regency as an area
that requires special credit treatment to address the recovery of disaster zones resulting from the
eruption of Mount Sinabaug;
KDK No. 3/KDK.03/2014 concerning the designation of the municipality of Manado as an area that
requires special credit treatment to address the recovery of the disaster zone resulting from the Manado
flood disaster; and
KDK No. 7/KDK.03/2014 concerning the designation of districts in Kediri Regency, Biltar Regency,
Malang Regency, the municipality of Kediri and Batu as areas that require special credit treatment to
address the recovery of the disaster zones resulting from the eruption of Mount Kelud.

On March 28, 2011, Bank Indonesia issued a new implementing regulation to Bank Indonesia Regulation
No. 12/23/PBI/2010 on Fit and Proper Tests dated December 29, 2010 (the Fit and Proper Test Regulation)
through Circular Letter No. 13/8/DPNP on Fit and Proper Tests (the Circular Letter). The Fit and Proper Test
Regulation and Circular Letter aim to strengthen the national banking system by laying out fit and proper test
mechanisms for banks under the control of the IDIC and by imposing stricter rules and sanctions in relation to fit
and proper tests for certain parties. With respect to sanctions imposed, a controlling shareholder who fails to pass
these fit and proper tests shall, among others, have his entire shareholding transferred within six months and be
prohibited to act as a controlling shareholder of any bank.

On September 22, 2011, Bank Indonesia issued Bank Indonesia Regulation No. 13/19/PBI/2011 as an
amendment to Bank Indonesia Regulation No. 8/12/PBI/2006 on Periodical Report for Commercial Bank, in
which Bank Indonesia moves forward the submission period for periodical reports from commercial banks and
requires an additional report concerning balance assets based on risk and computation for base interest credit
rate.

135
 On October 27, 2011, the House of Representatives passed the Financial Services Authority (Otoritas Jasa
Keuangan or OJK) law to establish an independent regulatory agency to promote sustainable growth in the
financial services sector. OJK is responsible for protecting consumer and public interest by regulating the
countrys financial services industry in a fair and transparent way. OJK will regulate the banking sector by
monitoring, among other things, bank office openings, ownership, acquisitions, licenses, fund sources, liquidity,
asset quality, credit lending, reserves, debtor information systems, accounting standards, risk management and
bank governance. Nine commissioners were appointed to OJK on July 20, 2012. Each commissioner term is
limited to five years and an individual may only be elected once. For accountability purposes, OJK will provide
annual activity reports to the President of the Republic of Indonesia and to the House of Representatives. The
OJK budget for operational and administrative activities shall come from the state budget and from fees collected
from practitioners in financial services. The entity has taken over its regulatory duties from Bank Indonesia since
2013.

In March 2012, Bank Indonesia mandated loan-to-value levels for mortgages and down payments on motor
vehicle loans in order to enhance banking prudence and to bolster financial sector resilience. The legislation is
stated in Bank Indonesia Circular No. 14/10/DPNP, dated March 15, 2012, concerning the Application of Risk
Management by Banks that offer Mortgages and Motor Vehicle Loans. A reduced payment level was set for
commercial vehicles from that of personal vehicles.

Under Regulation 16/10 that replaces Bank Indonesia Regulation No. 14/25/PBI/2012 and Bank Indonesia
Regulation No. 13/21/PBI/2011, all export proceeds, including those received from the export of mineral
commodities, must be received through a foreign exchange bank, which is a bank registered with Bank Indonesia
to carry out banking activities using foreign exchange in Indonesia. This obligation, however, shall not be
applicable to the Governments entitlement of export proceeds or export proceeds in cash received in Indonesia.
In principle, all export proceeds must be received within three months after registration of the notification of
export of goods. Exporters shall report to their foreign exchange bank the export proceeds information contained
in the notification of export of goods. On the other hand, every foreign exchange cash withdrawal by a debtor
derived from: (i) a non-revolving loan agreement that is not for refinancing purposes; (ii) the difference between
the amount used to refinance a foreign exchange debt facility and the amount of the refinanced foreign exchange
debt; and (iii) foreign exchange debt based on debt securities in the form of bonds, medium term notes, floating
rate notes, promissory notes and commercial paper, shall also be received through a foreign exchange bank.
Foreign exchange debtors shall report on every withdrawal made to Bank Indonesia.

Bank Indonesia largely supports the Basel III initiatives to enhance the quality of bank capital and, in doing
so, to make them more resilient to external shocks. Bank Indonesia has conducted regular monitoring and
quantitative studies to measure the impact of Basel III on the Indonesian banking industry. The result of the
impact study shows that the majority of the Indonesian banking industry is unlikely to be negatively impacted by
Basel III implementation, with most banks experiencing capital increases. This is due to the fact that the capital
component of the majority of banks in Indonesia is in the form of common equity, and that most of Indonesias
current regulatory adjustments when calculating capital are more conservative than that required by Basel III.
Since 2010, Bank Indonesia also joined the Global Comprehensive Quantitative Impact Studies conducted by the
Basel Committee on Banking Supervision (BCBS). As part of this process, Bank Indonesia submitted the data of
respondent banks (after implementing Basel III) to the BCBS Secretariat. Further, Bank Indonesia has published
a Consultative Paper on Basel III which asks for industry participants and other stakeholders comments. This
Consultative Paper can be accessed through Bank Indonesias website.

On September 24, 2013, Bank Indonesia introduced a new regulation regarding loan to value (LTV) and
financing to value (FTV) for property credit, and property-backed consumer loans through Circular Letter
No. 15/40/DKMP which replaces the 2012 regulations, in order to mitigate the concentration of credit risk in the
property sector as well as promoting the application of prudential principles when disbursing credit, as well as to
provide low and middle-income earners a greater opportunity to acquire appropriate housing as well as
simultaneously enhance aspects of consumer protection in the property sector. Central and regional government
housing schemes are exempt from the regulation. The 2012 LTV/FTV policy was deemed necessary due to
excessive credit growth in the property sector. The new regulation applies a regressive LTV/FTV ratio. The
primary objective of the regulation is to anticipate potential default risk attributable to weaker repayment
capacity. This regulation is subject to further adjustments in consistent with prevailing economic conditions as
well as overall banking industry performance.

136
Strengthening the Islamic Financial System
The Government believes that the Islamic finance banking industry has an opportunity to grow rapidly in
Indonesia, which has the largest Muslim population in the world. The industry provides the Muslim community
with alternative financial products and services that conform to Sharia principles. To assist with development and
growth of Islamic financial services in Indonesia, these alternative financial products are considered an integral
part of the banking industry and contribute to enhancing the stability of the Indonesian financial system by
supporting national economic development in Indonesia.

The Indonesian Islamic financial industry has been developing under the regulatory authority of OJK (since
December 31, 2013) and previously Bank Indonesia, which formulates and publishes a strategic plan for the
development of the industry. The development initiatives embrace the principles of a market-driven industry,
prudent management, financial efficiency and robustness, service excellence; and maintains conformity to Sharia
principles. The vision of the development program is to establish a robust and sound Islamic banking system
which is consistent with the Sharia principles of justice, general well-being and balanced living to promote both
material and spiritual social prosperity. The regulatory authorities have defined short, medium, and long-term
initiatives to support the development of the Islamic financial industry sector which are also in line with the
National Banking Architecture. To address the prospects and challenges of market development, the regulatory
authorities have established a robust regulatory framework for the Islamic financial industry through a number of
regulations and laws to develop Indonesias Islamic financial industry.

Previously, the Law No. 10 of 1998 on the Amendment of Law No. 7 of 1992 on Banking stipulated a dual
system bank in Indonesia that allowed the conventional bank to offer Islamic banking services by establishing
Islamic banking units and Islamic banking branches to carry out their business along Sharia principles. In July
2008, the Parliament ratified the Sharia Banking Law (as defined below) which serves as specific legal basis for
Islamic banking operations. For purposes of supervision, the Law No. 3 of 2004 on the Amendment of Law
No. 23 of 1999 on Bank Indonesia (Central Bank Law) allows Bank Indonesia to supervise and regulate Islamic
banks, and to provide central bank instruments that comply with Sharia principles for the purpose of conducting
monetary policy and other facilities for liquidity management and lender of last resort functions of the central
bank. The implementation of the Financial Services Authoritys Act No. 21 of 2011, has resulted in the
regulation and supervision function of Islamic banking (as well as banking supervision as a whole) being
transferred from Bank Indonesia to OJK from December 31, 2013.

In order to diversify and enrich the Islamic financial market, the DPR also ratified the legal basis for
Indonesian sovereign sukuk. The DPR has introduced amendments to the income tax treatment of Sharia-
compliant financial transactions and passed Law No. 42 of 2009 on the third amendments to the Law No. 8 of
1983 on Goods and Services and Sales Tax on Luxury Goods with effect from April 2010 to implement a neutral
VAT treatment of Sharia-compliant financial transactions.

The Government has also taken steps to promote the growth of Sharia-compliant financial products in
Indonesia and believes there is substantial opportunity for growth in the worlds most populous Muslim country.
Indonesias Islamic banking sector has grown at an average year-on-year rate of approximately 38.4% from 2009
to 2013 and, as of September 30, 2014, the assets of Sharia banks were Rp244 trillion, or +/-4.4%, of the
countrys total banking assets.

Market efficiency and compliance with Sharia principles in the Republics Islamic finance sector was also
supported by the establishment of the National Sharia Board in 2000, which was established under the Indonesia
Ulema Council (Majelis Ulama Indonesia), that serve as a single authority in issuing fatwa regarding Islamic
financial products and services. One role of the board is to minimize disputes regarding the interpretation and/or
implementation of Sharia principles in Islamic financial institutions in the country. It is also the sole authority for
issuing fatwa regarding Islamic financial instruments and in recommending members of Sharia supervisory
boards of Islamic banks and non-bank financial institutions.

Finally, the Government and financial authority are pursuing other strategies to develop competent and
qualified human capital for the industry, establish an effective regulatory and supervisory regime, provide
complete and supportive infrastructure, develop an efficient structure of Islamic finance industry, encourage a
synergy of strategic alliances among Islamic financial institutions, enhance product innovation and market
development, and enhance Islamic finance customer protection and empowerment.

The Jakarta Islamic Index (JIXI), launched in 2000, consists of 30 Sharia-compliant Indonesian stocks with
a market capitalization of Rp1,911.0 trillion as of June 30, 2014. The Republic launched its first local currency

137
sovereign sukuk in August 2008. Indonesias first local currency corporate sukuk was issued in 2002, and seven
sukuk were issued in the countrys domestic market by six issuers from January 1, 2013 to December 31, 2013.
From January 1, 2014 to November 30, 2014, four sukuk were issued in the countrys domestic market by three
issuers with total sukuk outstanding amounting to Rp11.99 trillion. To provide guidance for investors in and fund
managers of Sharia-compliant securities, Bapepam-LK publishes a list of Sharia-compliant securities twice a
year, and the list contains 306 Sharia-compliant stocks as of June 30, 2014. In 2008, the Directorate of Tax,
Ministry of Finance enacted a policy eliminating some taxes for sovereign sukuk which result in unequal
treatment for Islamic finance transactions. Following its successful inaugural dollar-denominated sukuk issued in
April 2009, the Republic has been periodically issuing sovereign sukuk.

In July 2008, Law No. 21 of 2008 on Sharia Banking (the Sharia Banking Act) was enacted to facilitate the
expansion of the Indonesian Islamic banking industry. The Sharia Banking Act applies Sharia principles to
banking for Sharia banks and Sharia divisions of conventional banks, prohibiting the payment and receipt of
interest and providing that returns on funds that are distributed or lent out must be based on the actual profits
generated. The Sharia Banking Act also prohibits Islamic banking business and transactions that would support
practices or products forbidden or discouraged by Sharia principles. This law also requires existing Sharia
divisions of commercial banks to operate as separate Islamic commercial banks if such a divisions assets
account for at least half of the parent commercial banks assets or within 15 years of the enactment of the Sharia
Banking Act. The Republic believes that the new legislation will better position Indonesia as a venue for Islamic
banking and finance.

During 2009, Bank Indonesia issued several regulations governing Sharia banking. Bank Indonesia
Regulation No. 11/15/PBI/2009 concerning Conversion of Conventional Banks to Sharia Banks requires a
conventional commercial bank to meet a minimum requirement of Rp100 billion in Tier 1 core capital before it
can operate as a Sharia commercial bank. Bank Indonesia Regulation No. 11/33/PBI/2009 concerning the
Implementation of Good Corporate Governance for Sharia Banks and Sharia Business Units and Bank Indonesia
Regulation No. 14/6/PBI/2012 and Circular Letter No. 14/25/DPbS (to replace Bank Indonesia Regulation
No. 11/31/PBI/2009 concerning Fit and Proper Test for Sharia Banks and Sharia Business Units) aim to promote
professionalism, transparency and accountability among directors, commissioners and Sharia supervisory boards
of Sharia banks.

On March 24, 2011, Bank Indonesia issued Bank Indonesia Regulation No. 13/14/PBI/2011 concerning
Valuation of Assets for Sharia Rural Bank (BPRS) in order to support the growth and development of the Sharia
banking industry with due observance to precautionary principles and Sharia principles, as well as to harmonize
with other prevailing Bank Indonesia regulations and to replace the previous Bank Indonesia Regulation
No. 8/24/PBI/2006. On November 2, 2011, Bank Indonesia issued Bank Indonesia Regulation
No. 13/23/PBI/2011 concerning the Implementation of Risk Management for Sharia banks and Sharia business
units. The regulation requires the implementation of risk management procedures tailored to the purpose,
business policy, size, complexity and capability of the Sharia banks and Sharia business units.

In November 27, 2012, Bank Indonesia issued Circular Letter No. 14/33/DPbS concerning the
Implementation of Policy on Housing and Automotive Financing for Sharia Banks and Sharia Business Units. In
essence, such policy is in line with the policy applicable to conventional banks. For housing financing, the policy
limits the financing to value (FTV) rate under a murabahah or isthisna scheme to only 70.0% of the mortgage
value provided by the customer, while under the musyarakah scheme, Sharia banks are limited to a 80.0%
sharing participation out of the total value of the house or building. In respect of automotive financing, the policy
introduced an obligation on customers to provide down payments of at least 25.0% for the financing of two- or
three- wheeled vehicles, 30.0% for financing four-wheeled vehicles which are not intended for productive
purposes, and 20.0% for four or more wheeled vehicles intended for productive purposes. This regulation was
replaced on September 24, 2013, with the introduction of a new Bank Indonesia regulation regarding loan to
value (LTV) and financing to value (FTV) for property credit, and property-backed consumer loans through
Circular Letter No. 15/40/DKMP.

Moreover during 2013, Bank Indonesia issued regulations concerning Sharia banking including:
(i) Circular Letter Number 15/8/DPbS dated March 27, 2013 concerning the opening of Sharia
Commercial Banks and Sharia Business Unit Offices Network based on core capital. The regulation
stipulates that the opening of additional offices within a network should primarily be supported by
financial capacity, with such financial capacity being determined by core capital allocation and
availability. To support this objective, the regulation specifically excludes certain definitions such as

138
 the delivery channel (a Sharia deposit service operated by a standalone Islamic bank within the banks
conventional) and office channeling (whereby Sharia financing and deposit services are provided
within a conventional bank) such that these definitions are not captured when determining the size of a
current banks network;
(ii) Circular Letter Number 15/26/DPbS dated July 10, 2013 concerning guidance for the implementation
of Indonesias Islamic Banking Accounting Standard for Sharia Commercial Banks and Sharia
Business Units, regulates the implementation of accounting standards relating to the Sharia banking
industry. This guidance sets out the treatment of financial instruments in Indonesias accounting
standard No. 50 (year 2010 revision), Indonesias accounting standard No. 55 (year 2011 revision),
which in addition to Indonesias accounting standard No. 60, regulates the implementation of
accounting treatment relating to Sharia National Board Fatwa No. 84/DSN-MUI/XII/2012 concerning
the murabahah revenue recognition method; and
(iii) Bank Indonesia Regulation Number 15/13/PBI/2013 dated December 24, 2013 relates to the
amendment of Bank Indonesia Regulation Number 11/3/PBI/2009 concerning Sharia Commercial
Banks. The regulation was amended in order to increase good governance, accountability and the
reporting accuracy of a banks office network and executive management, while also increasing the
efficiency and development of the Sharia banking industry and its harmonization with other related
regulations. The regulation stipulates that Sharia banks can cooperate with conventional banks (as long
as they are within the same banks group/under the same ownership) on certain services such as the
delivery channel for Sharia deposit services in a conventional banks office network and receiving
consultancy services from a conventional bank.

The Income Tax treatment on Sharia-based transactions is currently regulated under Government Regulation
No. 25 of 2009 on Income Tax on Sharia-Based Business (GR 25/2009) which was issued as a mandate of
Article 31D of the Law No. 36 of 2008 on Income Tax (the New Income Tax Law). This regulation provides
general treatments on Sharia transactions with respect to income, expenses, and withholding taxes. Following the
GR 25/2009, the Minister of Finance recently issued two regulations as the implementing regulations to GR
25/2009, i.e. the Minister of Finance Regulation No. 136/PMK.03/2011 on Income Tax Treatment of Sharia
Banking (MOF Reg. 136/2011) and MOF Reg. No. 137/PMK.03/2011 on Income Tax Treatment on Sharia-
Based Financing Activities (MOF Reg. 137/2011). Both of these Minister of Finance regulations were issued on
August 19, 2011 and became effective on the date of issuance. MOF Reg. 136/2011 describes the tax treatment
of recipients based on the types of income and the recipients of income while MOF Reg. 137/2011 defines the
tax treatment of various enumerated Sharia-based financing activities. The most significant progress set forth in
these regulations is the adoption of a pass-through securitization concept for the transfer of assets or lease of an
asset, which is required in the fulfillment of Sharia-compliant transactions. Pursuant to these provisions, income
accrued from Sharia-based transactions are treated mutatis mutandis to similar conventional transactions to
provide a level-playing field among Sharia and conventional businesses.

The table below sets out the number of Sharia mutual funds and the net assets values for the years 2009 to
2013 and as of October 31, 2014.

Mutual Funds
As of
As of December 31, October 31,
2009 2010 2011 2012 2013 2014

Number of Sharia Mutual Fund . . . . . . . . . . . . . . . 46 48 50 58 65 66

Net Asset Values of Sharia Mutual Fund (in
billions of Rupiah) . . . . . . . . . . . . . . . . . . . . . . . . 4,629.2 5,225.8 5,564.8 8,050.1 9,432.2 10,267.4
Source: OJK

In 2009, the Republic had 46 Sharia mutual funds with a net asset value (NAV) of Rp4,629.2 billion,
increasing to 48 such funds with a NAV of Rp5,225.8 billion as of December 31, 2010. There were 50 such funds
as of December 31, 2011 with a NAV of Rp5,564.8 billion. The Republic had 65 Sharia mutual funds with a
NAV of Rp9,432.2 billion as of December 31, 2013 and as of October 31, 2014, the Republic had 66 Sharia
mutual funds with a NAV of Rp10,267.4 billion.

139
Non-Bank Sharia Financial Industry
Sharia Non-Bank Financial Industry (Industri keuangan Non Bank Syariah or IKNB Sharia) is supervised
by OJK (Indonesia Financial Service Authority) and consists of the Sharia Insurance Company, the Sharia
Pension Fund, the Sharia Financial Institution and other Sharia Financial Service Institutions. OJK is currently
preparing and developing the regulatory governance for Sharia pension funds. There are currently no established
Sharia pension funds in Indonesia.

The table below sets out the number of Sharia entities and the assets for the years 2012 and 2013 and the
nine months ended September 30, 2014.

IKNB Sharia

Other Sharia
Sharia Sharia Sharia Financial
Insurance Pension Financial Service
Number of Sharia Entities Company Fund Institution Institution IKNB Sharia

As of December 31, 2012 . . . . . . . . . . . . . . . . . . . . . . . 45 0 34 2 80

As of December 31, 2013 . . . . . . . . . . . . . . . . . . . . . . . 49 0 48 2 99
As of September 30, 2014 . . . . . . . . . . . . . . . . . . . . . . 49 0 48 2 99
Asset Values (in trillions of Rupiah)
2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.2 0 22.7 0.1 36.0
2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16.7 0 25.0 0.1 41.7
September 30, 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . 20.7 0 23.5 0.1 44.3
Source: OJK

As at December 31, 2013, there were 99 IKNB Sharia entities registered with OJK, 49 of which were from
Sharia insurance companies, 48 of which were from Sharia financial institutions and two of which were from
other Sharia financial institution services. The value of IKNB Sharia assets at December 31, 2013 was Rp41.7
trillion.

The table shows that from 2012 to 2013 the number and value of assets held by IKNB Sharia entities
increased. Compared to 2012, IKNB Sharia showed an increase of 23.8% in the number of entities with an
increase of 15.9% in the value of assets. The increased number of entities reflects the belief that there is
potentially a very large demand for IKNB Sharia entities. The corresponding growth in IKNB Sharia assets can
be attributed to the increased number of entities and the development of new IKNB Sharia products and services
designed to accommodate the increased public interest and demand.

The development of IKNB Sharia in Indonesia continues to focus on enhancing the role of the regulator to
support the performance of the industry. One measure for rating the effectiveness of the regulator is to view the
number of new policies implemented and maintained over time.

With respect to the interest of the finance industry and the stakeholders, in 2013 OJK implemented various
policies in relation to IKNB Sharia. The IKNB Sharia policies implemented in 2013 were designed to cover
development activities, drafting of regulatory concepts, research, supervision and servicing agencies.

Based on research conducted by former Bapepam-LK and its successor OJK on Sharia based pension
programs over the last five years and the issuance of a Fatwa of National Sharia Board Indonesia Ulama
Council (DSN-MUI) number 88/DSN-MUI/XI/2013 on General Guidelines on Administration of Sharia
Principle Based Pension Program in 2013, OJK has formed the basic principles in preparing the regulatory
concept for a Sharia pension fund. With the issuance of a fatwa by DSN MUI and the OJK regulations for Sharia
pension funds, it is expected that Sharia pension funds will develop in conjunction with other Sharia financial
services.

Anti-Money Laundering Regime

Various financial regulatory agencies in the Republic were formed to combat money laundering activities
within Indonesia. In 2002, the Government enacted an anti-money laundering law (2002 AML Law), and
established a financial intelligence unit, the Indonesian Financial Transaction Reports and Analysis Centre
(INTRAC/ PPATK). The PPATKs duties later were expanded to include matters relating to countering

140
financing of terrorism, and consequently, the Indonesian Financial Intelligence Unit (PPATK) was appointed to
be the focal point of countering money-laundering and financing of terrorism in Indonesia. In 2006, the Ministry
of Finance adopted a new decree regarding the implementation of know-your-client (KYC) principles which
requires non-bank financial institutions to comply with anti-money laundering regulations, such as the
requirement to report suspicious financial and cash transactions to the PPATK by way of suspicious transaction
reports or cash transaction reports. This decree was subsequently amended in February 2010. In 2009, Bank
Indonesia promulgated a new regulation on further strengthening customer due diligence and enhanced due
diligence covering the implementation of anti-money laundering and the prevention of terrorism funding
programs for commercial banks to introduce international best practices. This regulation was replaced in 2012
with the intention of harmonizing existing regulations and conforming them to international standards, with
particular emphasis on those provisions relating to the transfer of funds, high risk areas and customer due
diligence. This update was enacted to support the strategy of national and global financial cohesion strategy and
cross-border banking of the Republic. In 2009, Bapepam-LK also revised its KYC regulations for parties
involved in capital market activities and imposed reporting obligations for suspicious financial and cash
transactions to the PPATK. In 2009, the Criminal Investigation Board of the Indonesia National Police
established a special unit to investigate money laundering cases and a task force for terrorist financing. In March
2010, Bank Indonesia issued a regulation regarding Anti Money Laundering (AML) and Countering Financing
of Terrorism (CFT) procedures in the money changers sector.

From June 2001 until February 2005, the Financial Action Task Force (FATF), an organization established
by developed countries to combat money laundering, had placed Indonesia on its list of non-cooperative
countries and territories. Although now removed from this list, Indonesia has continued to strengthen its anti-
money laundering laws and regulations and increase enforcement.

In order for Indonesia to comply with Recommendation 1 as set out in the FATF Recommendations,
PPATK in cooperation with AUSTRAC, since September 2013, has established the National Risk Assessment
(NRA) documentation for Indonesia. In addition to satisfying FATF Recommendation 1, the introduction of the
NRA documentation will help further the prevention and eradication of money laundering and help prevent
financing of terrorism. Several agencies will be involved with the establishment of the NRA documents: the State
Audit of the Republic of Indonesia, Financial Services Agency, Corruption Eradication Commission, Ministry of
Law And Human Rights, Ministry of Finance, Attorney General, Indonesia National Police and National
Narcotics Agency.

In satisfaction of Special Recommendation IV of the FATF Recommendations, PPATK will be issuing a

PPATK Regulation concerning the issue of reports for the identification of suspicious transactions relating to the
financing of terrorism for financial service providers along with a circular letter providing key indicators for
identifying suspicious transactions in addition to examples of suspicious transactions relating to the financing of
terrorism.

On January 17, 2013, the Government attended the Asia Pacific Regional Review Group (RRG) in Hong
Kong. The Indonesian delegation consisted of representatives from PPATK, the Ministry of Foreign Affairs, the
Fiscal Policy Office (BKF) and the Ministry of Finance. The RRG Review Team consisted of representatives
from Hong Kong, India, the United States, Canada, Macau, as well as representatives of the Asia/Pacific Group
on Money Laundering (APG) Secretariat and FATF Secretariat.

Some of the significant progress made in implementing the Governments AML and CFT national strategies
in the last few years has included: establishing a single identity number for each citizen to facilitate detection of
fraudulent identities; promulgating a new Anti-Money Laundering Law, namely, Law No. 8 of 2010 on the
Prevention and Eradication of Money Laundering Crimes; on-going establishment of electronic information
exchanges among the PPATK, KPK and the National Police (2010 AML Law) which replaces the 2002 AML
Law, and its implementing regulations; enhancing compliance supervision and monitoring for financial service
providers; enhancing Bank Indonesias regulation of money changers in relation to KYC and registration
requirements; implementing more effective procedures for the tracing and forfeiture of assets; increasing public
participation through a public campaign to support the implementation of the anti-money laundering regime;
strengthening regulations relating to the alternative remittance system and wire transfers; the establishment of
electronic information exchange systems among the PPATK, KPK and Indonesian National Police; accelerating
the drafting and implementation of regulations and reporting obligations for goods and service providers;
increasing the effectiveness of investigating criminal cases related to money laundering and organized crime; the
comprehensive management of non-profit organizations; and the ratification of the UN Convention against
Transnational Organized Crime through Law No. 5 of 2009 and the International Convention for the Suppression
of the Financing of Terrorism through Law No. 6 of 2006.

141
 PPATK has made arrangements to cooperate with investigations on suspicious financial transactions with
the Indonesian National Police, the Attorney Generals Office and other partner agencies involved in these
investigations. As of July 31, 2012, PPATK had entered into memoranda of understanding with 44 financial
investigation unit counterparts abroad. PPATK has also launched a nationwide program to educate relevant
audiences on potential money laundering activities.

As of October 31, 2013, PPATK had disseminated 5,402 analysis results regarding money laundering and
predicate crimes to law enforcement agencies. In addition, the number of suspicious transaction reports (STRs)
received from banks and non-banks has steadily increased from 115,167 cases as of December 31, 2012 to
146,158 as of October, 2013. Similarly, the number of cash transaction reports (CTRs) increased from
12,247,141 cases as of December 31, 2012 to 13,456,612 cases as of October, 2013.

As of June 30, 2014, the PPATK had received 93,394 STRs from banks and 80,065 STRs from non-banks,
in addition to 14,509,758 CTRs from banks and 31,727 CTRs from non-banks. Goods and service providers also
provided 45,959 reports to PPATK. As of June 30, 2014, PPATK had disseminated 2,646 analysis reports
regarding money laundering and related predicate crimes to law enforcement agencies.

The 2010 AML Law came into force on October 22, 2010 replacing the 2002 AML Law and its amendment
of 2003 to be in line with current international standards and best practices. Some important features of this new
law include:
Extending the scope of coverage to predicate offences combining 25 crimes, including narcotics and
psychotropic substances and any other crimes with an imprisonment for a term of four years or more.
Extending the scope of coverage of assets and proceeds, including assets which are known or
reasonably suspected of being used, directly or indirectly, for acts of terrorism.
Increasing the maximum custodial sentence of money laundering offense to 20 years with a fine of up
to Rp10 billion.
Extending the scope of reporting parties to include financial service providers and designated non-
financial businesses, for example property companies/agents, car dealers, dealers of precious stones,
metals and jewels, art and antique dealers, and auction houses.
Extending the authority of PPATK to request for and obtain data and information from government
institutions and/ or private institutions which possess an authority to manage data and information.
Extending the types of reports from financial service providers, in the form of international fund
transfer instruction reports.
Empowering financial services providers to postpone transactions for five days.
Authorizing controls on the cross-border carrying of cash and bearer negotiable instruments.
Allowing the investigation of money laundering to be conducted by the investigator of predicate
crimes, namely the Indonesian National Police, the General Prosecutor Office, the KPK, the National
Narcotics Board, the Directorate General of Taxation and the Directorate General of Customs and
Excise under the Ministry of Finance.
Giving the investigator, public prosecutor or judge the authority to order the reporting party to
postpone a transaction of assets known or reasonably suspected to constitute proceeds of criminal acts.
Not requiring proof of the predicate crime beforehand, so that at trial, the onus is on a defendant to
prove that the assets in question did not originate from or are not linked to the alleged criminal acts.
When an investigator finds indications of a money laundering crime and the predicate crime, requiring
the investigator to combine the investigation of both crimes and notify PPATK.
Arranging compliance supervision.
Rearranging the organizational structure of PPATK.
Setting the provisions for the seizure of assets originating from criminal acts.

In order to implement the 2010 AML Law, Presidential Regulation No. 50 of 2011 on Procedures for the
Implementation of Authority of the Indonesian Financial Transaction Reports and Analysis Centre was issued on
August 12, 2011. This new regulation focuses on the authority of PPATK to perform its functions.
In preventing and eradicating money laundering, PPATK has the authority to, among other things,
require and obtain data and information from any government institution and/or private institution
having the authority to process data and information, receive reports from short-listed professionals,

142
 coordinate the prevention of money laundering with relevant institutions and represent the Government
in international forums and organizations in relation to the prevention and eradication of money
laundering.
In processing data and information through the administration of information system, PPATK has the
authority to build, develop and maintain an application system, database and information technology
infrastructure.
In monitoring the compliancy of the reporting party with Know Your Customer (or KYC) principles,
PPATK has the authority to perform an audit or special audit.
In analyzing or investigating reports and information on financial transactions indicated as money
laundering and/or other criminal acts, PPATK has the authority to, among other things, require
financing service providers to temporarily suspend all or part of any transaction suspected or known to
have been part of a criminal act.

Recent regulations issued by the PPATK as further implementation of the 2010 AML Law are Perka No.
PER-12/1.02.1/PPATK/09/2011 Obligation of Designated Non-Financial Businesses and Provider to submit
reports to PPATK for any transactions in their business at a defined threshold, Head of PPTAK Regulation No.
PER-11/1.02/PPATK/06/13 Concerning Identification of Suspicious Transaction Reports for financial service
Providers and Head of PPTAK Regulation No. PER-12/1.02/PPATK/06/13 concerning the Procedure for
Submitting International Fund Transfer instruction for Financial Service Providers.

As part of the implementation of the Governments policy to prevent and eradicate the crime of money
laundering, PPATK Regulation Perka No. PER-12/1.02.1/PPATK/09/2011 was promulgated and is applicable to
real estate agents, car dealers, jewelry and precious stone traders as well as to auction houses for any transaction
equivalent to or above Rp500,000,000. This obligation is effective starting March 2013.

As part of implementation of the Governments policy to prevent and eradicate the crime of money
laundering PPATK Regulation No. PER-11/1.02/PPATK/06/13 on Identification by Financial Service Providers
of Suspicious Financial Transactions was promulgated in July 22, 2013. The Regulation sets forth new guidelines
to be used by financial service providers to identify suspicious financial transactions. It replaces the guidelines
created in 2003 that were deemed to not conform with the international standards recommended by the FATF.
The Regulation sets forth in detail the three steps that a financial service provider must take in order to identify
suspicious financial transactions, i.e. the supervision of unusual transactions by consumers who are deemed to be
at high risk of committing money laundering, analysis of such unusual transactions, and finally the determination
of transactions as suspicious financial transactions. Financial service providers must report transactions that have
been determined to be suspicious financial transactions to PPATK. In order to carry out the obligations set forth
in the Regulation, financial service providers must have internal policies and procedures in place.

As part of implementation of the Governments policy to prevent and eradicate the crime of money
laundering, PPATK Regulation No. PER-12/1.02/PPATK/06/13 on Procedure for Submission by Financial
Service Providers of Reports on International Fund Transfers was promulgated in July 9, 2013. Under such
Regulation, financial service providers that provide international fund transfers services are obligated to submit
reports to PPATK regarding fund transfer instructions to and from overseas, including instructions received or
sent in writing, electronically, and through other applications, such as SWIFT. Such reports must include, among
others, identities of the originator and the beneficiary. The reports are submitted electronically through PPATKs
client server application or web based application. In order to carry out its obligations under the Regulation,
financial service providers must allocate at least eight personnel for four different responsibilities, whose names
and job titles must be submitted to PPATK. Implementation of obligations as set forth in the Regulation shall be
effective as of January 14, 2014 for commercial banks and July 1, 2014 for financial service providers other than
commercial banks.

PPATK issued PPATK Regulation No. PER-21/1.02/PPATK/11/2013 on November 29, 2013 on the
Identification of Financial Transactions in Cash for Financial Service Providers, and Circular Letter No.
SE-01/1.02/PPATK/02/14 on Examples of the Use of Consumer Approach and Account Approach in
Implementing the Identification of Financial Transactions in Cash dated February 28, 2014. Under these
regulations, financial service providers are required to identify, record and monitor financial transactions in cash
of their customers and their accounts. Should the financial service provider determine that a financial transaction
is a single financial transaction in cash or a series of multiple financial transactions in cash made during one
business day, with a cumulative value of at least Rp500 million, or its equivalent in other currencies, carried out

143
in one or more offices of a financial service provider and such transaction is not excluded from a reporting
obligation (i.e. a transaction in cash (i) made by a financial service provider and Bank Indonesia; (ii) made for
the purpose of payment of payroll and pension funds; (iii) determined otherwise by PPATK; or (iv) proposed by
a financial service provider to be excluded and approved by PPATK), then it shall report the same to PPATK.

On February 27, 2014, PPATK issued PPATK Regulation No.PER-02/1.02/PPATK/02/2014 on the

Integrated Information System on Customers. PPATK issued Circular Letter No. SE-02/1.02/PPATK/03/14
dated March 4, 2014 on the Procedure of Submission of Integrated Information on Customers. Under the
regulations, both banks and non-bank financial service providers are required to submit to PPATK integrated
information on their customers on a quarterly basis. Information may be submitted manually or electronically,
and should be made available for two years after the date of submission to PPATK.

The Presidential Regulation No. 48 of 2012 concerning Organizational Structure and Management of the
PPATK was enacted in 2012. The Government Regulation No. 38 of 2013 concerning Remuneration, Other
Rights, Perquisites and Facilities for the Head and Deputies was promulgated on May 8, 2013.

On March 13, 2013, the House of Representatives of the Republic of Indonesia adopted the Law No. 9 of
2013 on the Prevention and Eradication of the Financing of Terrorism (Law No. 9). Law No. 9 comprehensively
regulates: (i) the criminalization of terrorist financing offenses and other offenses related to terrorism financing
offenses; (ii) the application of the principle of recognizing users of financial services; reporting and compliance
monitoring; (ii) surveillance activities through a remittance transfer system or through other systems by financial
service providers; (iii) control disposition of cash and/or other payment instruments into or outside the
Indonesian customs area; (iv) blocking mechanisms; (v) the inclusion in the list of suspected terrorists and
terrorist organizations; and (vi) the setting of the investigation, prosecution, and examination at trial.

Terrorism financing within the scope of Law No. 9 includes acts committed directly or indirectly in order to
provide, gather, give, or lend funds to those who are known to intend commit an act of terrorism. In addition to
individuals, Law No. 9 regulates the criminalization of terrorist financing to terrorist organizations. Terrorist
organizations within Law No. 9 can include a collection of people who have a common goal and that, based on a
court decision, have committed an act of terrorism. Parties that are named in lists of terrorist organizations also
fall within the scope of Law No. 9.

PPATK, as the initiator of the preparation of Law No. 9, has a role in preventing and combating the
financing of terrorism offenses. Therefore, one of the initial steps undertaken by INTRAC was to organize a
national seminar on May 2, 2013 with the theme Implementation of Law No. 9 of 2013 on the Prevention and
Eradication of the Financing of Terrorism. This seminar was presented by the House of Representatives, the
Supreme Court, the Indonesian National Police, the Ministry of Foreign Affairs of the Republic of Indonesia, as
well as academics. The seminar was attended by more than 300 law enforcement officials, regulators, financial
service providers, and other stakeholders.

In addition, in May 2013, INTRAC initiated an inter-ministerial coordination meeting between the Foreign
Ministry, the Indonesian National Police, the National Counter-Terrorism Agency (BNPT) and PPATK. The
coordination meeting was held to discuss implementation efforts related to Chapter VII of Law No. 9 of 2013
related list Terrorists and Terrorist Organizations Contingency Issued by the Government. Additionally, the
implementation of provisions to meet FATF Recommendation 5 and Recommendation 6 pertaining to blocking
property owned or dominated by terrorists and terrorist organizations as stated in the consolidated list of
United Nations Security Council Resolution (UNSCR) 1267 were discussed.

PPATK issued new regulations to further increase the cooperation between PPATK and the other agencies
and reporting parties. PPATK Regulation No. PER-08/1.02/PPATK/05/2013 sets out the procedure for
requesting information from PPATK.

Bank Indonesia
Bank Indonesia is the central bank of the Republic of Indonesia and the only institution in the Republic with
responsibility for monetary policy. Following the Asian financial crisis, the Government enacted the Central
Bank Law in 1999 to ensure the independence of Bank Indonesia in pursuing its objectives in monetary, banking
and payment systems policies. The Central Bank Law stipulates two key principles the achievement of Rupiah
stability and Bank Indonesias freedom from interference.

144
 The Central Bank Law states that the objective of Bank Indonesia is to achieve and maintain the stability of
the Rupiah. Rupiah stability can be measured in terms of its value vis--vis either domestic or external goods.
Rupiah stability relative to domestic goods is reflected in the inflation rate, while stability relative to external
goods is represented by the exchange rate of the Rupiah against other currencies. Market conditions determine
the Rupiah exchange rate, consistent with the floating exchange rate system adopted by Bank Indonesia in
August 1997. See Foreign Exchange and Reserves Exchange Rates. Bank Indonesia may, however,
continue to use its policy instruments to minimize exchange rate fluctuations.

To help Bank Indonesia achieve its objective, the Central Bank Law grants Bank Indonesia a high degree of
independence to: (i) stipulate and implement monetary policy; (ii) regulate and safeguard the payment system;
and (iii) regulate and to supervise banks.

In January 2004, the Central Bank Law was amended. The amendment, among other things, provides that
Bank Indonesia shall conduct monetary policy to achieve an inflation target as determined by the Government in
consultation with Bank Indonesia. It also provides for the creation of the Bank Indonesia Supervisory Board (the
Supervisory Board) to assist the DPR in conducting oversight of Bank Indonesias internal financial
management. The Supervisory Board comprises five members chosen by the DPR and appointed by the President
for three-year tenures. The January 2004 amendment also stipulates that Bank Indonesia is the lender of last
resort to ensure the stability of the financial system.

Under the Central Bank Law, Bank Indonesias banking supervision function was originally to be
transferred to a new independent agency by December 31, 2002. The January 2004 amendments to the Central
Bank Law extended this deadline to December 31, 2010. However, pursuant to Law No. 21 of 2011 on Financial
Services Authority (OJK Law), such authority was transferred to the Financial Services Authority (Otoritas Jasa
Keuangan or OJK) as of December 31, 2013.

Bank Indonesia, as a separate legal entity from the Government, has its own assets and its own liabilities.
The foreign exchange reserves held by Bank Indonesia are recorded on the assets side of the Bank Indonesia
balance sheet, while certain items of foreign debt (such as loans from the IMF) are liabilities of Bank Indonesia.

145
 The following table sets forth the balance sheet of Bank Indonesia and was prepared in accordance with the
Monetary and Financial Statistics Manual published by the IMF, as of the dates indicated.

Analytical Balance Sheet of Bank Indonesia

As of December 31, As of October 31,

2009 2010 2011 2012 2013 2014
(in billions of Rupiah)
Base Money (M0) . . . . . . . . . . . . . . 402,118 518,447 613,488 704,843 821,679 855,029
Currency in Circulation(1) . . . . 279,029 318,575 372,972 439,720 500,020 480,753
Commercial Banks Demand
Deposits at Bank
Indonesia . . . . . . . . . . . . . . . 89,903 159,106 207,538 239,957 253,655 277,903
Private sector Demand
Deposits . . . . . . . . . . . . . . . 601 484 116 133 451 1,140
Bank Indonesia Certificates
(SBI)(2) . . . . . . . . . . . . . . . . . 32,586 40,282 32,862 25,033 67,552 95,232
Factors Affecting Base Money
(M0) . . . . . . . . . . . . . . . . . . . . . . 402,119 518,447 613,488 704,843 821,679 855,029
Net Foreign Assets . . . . . . . . . 585,913 829,285 965,873 1,056,084 1,169,689 1,314,770
Claims on Non-Residents . . . . 621,815 862,979 1,015,081 1,152,721 1,279,282 1,392,116
Liabilities to Non-Resident . . . (35,902) (33,694) (49,208) (96,636) (109,593) 77,346
Claims on Other Depository
Corporations . . . . . . . . . . . . 7,166 5,023 4,399 3,226 2,315 1,505
Liquidity Credits . . . . . . . . . . . 2,410 1,872 1,521 1,137 1,016 994
Other Claims . . . . . . . . . . . . . . 4,756 3,152 2,878 2,089 1,300 510
Net claims on Central
Government . . . . . . . . . . . . 200,956 160,777 166,928 200,520 185,249 171,019
Claims on Central
Government . . . . . . . . . . . . 255,498 252,349 256,520 252,214 245,029 237,623
Liabilities to Central
Government . . . . . . . . . . . . (54,542) (91,572) (89,591) (51,694) (59,781) 66,603
Claims on Other Sectors . . . . . 14,509 13,344 13,743 13,508 8,116 7,955
Claims on Other Financial
Institutions . . . . . . . . . . . . . 1,442 1,000 421 202 6 2
Claims on Private Sectors . . . . 13,067 12,345 13,322 13,306 8,109 7,953
Open Market Operations(3) . . . (289,892) (417,012) (403,347) (344,565) (193,362) (291,251)
Other Liabilities to
Commercial & Rural
Banks . . . . . . . . . . . . . . . . . (11,027) (6,698) (43,850) (50,407) (68,872) (71,560)
Deposits included in Broad
Money (M2) . . . . . . . . . . . .
Deposits excluded from Broad
Money (M2) . . . . . . . . . . . . (10) (10) (32) (35) (15) (37)
Shares and Other Equity . . . . . (92,464) (60,213) (79,087) (169,783) (284,545) (278,970)
Net Other items . . . . . . . . . . . . (13,031) (6,049) (11,139) (3,705) 3,106 1,597
Source: Bank Indonesia
(1) Currency outside banks plus cash in vault.
(2) SBI which is used to fulfill the secondary statutory reserve requirement of banks and accounted for as primary money supply
components. Included in Base Money since October 2009.
(3) Consists of total SBI after it is reduced by the SBI used to fulfill the secondary statutory reserve requirement of banks, and is accounted
for as a primary money supply component (see footnote 1). Such SBI types include: Syariah SBI (SBIS), Third Party Syariah SBI (Repo
SBIS), Bank Indonesia Facility (FASBI), Fine Tune Operation (FTO), Government Bonds (SUN), State Syariah Negotiable Paper
(SBSN), and Reserve Reverse Repo Government Bonds.

146
Banks and Other Financial Institutions
The Indonesian financial system consists of banks and non-bank financial institutions. Non-bank financial
institutions consist of insurance companies, pension funds, finance companies, venture capital companies,
securities companies, mutual funds, credit guarantee companies and pawn shops. The following table sets forth
the total number of financial institutions in operation and their share of total assets of the financial system as of
September 30, 2014.

Indonesian Financial Institutions

Number of Percentage of
institutions Assets* total assets
(in trillions of Rupiah)
Banking:
Commercial banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 120 4,932.9 74.6
Rural credit banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,636 78.8 1.2
Total banking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,756 5,011.8 75.8
Insurance:
Life insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52 327.6 5.0
General insurance & Reinsurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86 114.8 1.7
Social insurance(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 301.2 4.6
Total insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 143 743.6 11.2
Pension funds(2):
Financial institution pension funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 33.4 0.5
Employer pension funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 240 145.5 2.2
Total pension funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 265 178.9 2.7
Finance companies(2)............................................. 200 417.2 6.3
Venture capital companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70 9.3 0.1
Securities companies(3)(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 119 40.3 0.6
Mutual funds (collective investment schemes, not institutions) . . . . . . . . . . . . 685 169.9 2.6
Credit guarantee companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 9.4 0.1
Pawn shops(5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 34.2 0.5
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,253 6,614.6 100.0

Sources: OJK
* Unaudited other than in respect of Banking, Securities Companies, and Mutual Funds.
(1) Social insurance encompasses traffic and public transportation, health social security programs, worker social security programs and
insurance for civil servants and the armed forces.
(2) Finance companies provide financing for leasing, factoring, consumer finance and credit cards.
(3) Excludes 25 securities companies that are not members of a securities exchange but act as broker-dealers.
(4) Excludes the assets of customers of the securities companies.
(5) Total assets of pawn shops as at March 31, 2014.

Indonesian banks are divided into two categories: commercial banks and rural banks. Both commercial and
rural banks may operate under either conventional banking principles or under Sharia principles. The
Government also issued Perpu No. 3 of 2008 on Amendment to Law No. 24 of 2004 on IDIC, which allows
temporary increases in the level of deposit insurance provided by the IDIC to be adjusted through a government
regulation in response to high levels of inflation, threats of bank runs and similar adverse market developments.
Perpu No. 3 of 2008 was later enacted as Law No. 7 of 2009. The number of banks in Indonesia has dropped
substantially since the Asian financial crisis, as insolvent banks were closed or merged with other banks. There
were 239 commercial banks at the end of 1996, and, as of December 31, 2010, there were 122 commercial banks
with 13,837 offices, consisting of four state-owned banks, 67 private national banks (36 of which were licensed
to conduct foreign exchange transactions), 26 regional development banks and 25 joint venture banks and foreign
banks. As of December 31, 2012, there were 120 commercial banks with 16,625 offices, 66 private national
banks and 24 joint venture banks. As of December 31, 2013, there were 120 commercial banks with
18,558 offices, 65 private national banks and 25 joint venture banks.

As of March 31, 2014, there were 65 private national banks, 24 joint venture banks and 163 Sharia divisions
of rural banks. As of September 30, 2014, there were 120 commercial banks with 19,430 offices and 1,636 rural
banks.

147
 As of December 31, 2012, the number of rural banks decreased to 1,653 and the number of Sharia divisions
of rural banks increased to 158. As of March 31, 2014, there were 49 life insurance companies, 83 general
insurance companies, four reinsurance companies, three companies providing social insurance programs and
health and workers social security programs, two companies providing insurance programs for civil servants,
military and police, 154 insurance broker companies, 29 reinsurance broker companies, 25 insurance loss
adjusters, 29 actuary consultants and 26 insurance agent companies.

Gross premiums collected by the insurance industry reached Rp153.1 trillion in 2011, an increase of 22.4%
from the previous years figure of Rp125.1 trillion. Gross premiums averaged an annual growth of 22.8% over
the five-year period from 2007 to 2011. Total assets of the insurance industry as of December 31, 2011 were
Rp481.8 trillion, an increase of 18.9% from Rp405.2 trillion as of December 31, 2010. Invested assets of the
insurance industry as of December 2011 totaled Rp419.7 trillion, an increase of 17.8% over December 2010.

Gross premiums collected by the insurance industry reached Rp178.1 trillion in 2012, an increase of 14.9%
from the previous years figure of Rp153.1 trillion. Gross premiums averaged an annual growth of 18.0% over
the five-year period from 2008 to 2012. Total assets of the insurance industry as of December 31, 2012 were
Rp584.0 trillion, an increase of 21.2% from Rp481.8 trillion as of December 31, 2011. Invested assets of the
insurance industry as of December 2012 totaled Rp496.8 trillion, an increase of 18.3% over December 2011.

As of December 31, 2013 (audited report), gross premiums collected by insurance companies reached
Rp193.1 trillion and total assets of the insurance industry were Rp659.7 trillion. Meanwhile, invested assets were
Rp538.5 trillion.

As of September 30, 2014 (non-audited report), gross premiums collected by insurance companies reached
Rp188.7 trillion and total assets of the insurance industry were Rp743.6 trillion. Invested assets were
Rp612.0 trillion.

The OJK is responsible for the regulation and supervision of the insurance industry. Development of this sub-
sector since the Asian financial crisis required the implementation of more robust regulatory requirements and, in
particular, improved capital requirements. For the purpose of financial soundness of insurance companies, a 2003
decree of the Ministry of Finance that became effective in 2005 requires each insurance company, including
reinsurance companies, to continuously maintain a ratio of risk-weighted assets to risk-weighted liabilities of at least
120.0%. In September 2006, the Indonesian Insurance Mediation Agency (Badan Mediasi Asuransi Indonesia or
BMAI) commenced operations. BMAI is an independent body established to provide mediating services to insured
persons and insurance policy holders who are dissatisfied with claim rejections. Dispute Resolution through BMAI
is pursuant to the Law No. 30 of 1999 on Arbitration and Alternative Dispute Resolution. BMAI was established
through the initiative of the insurance industry, including insurance industry associations, with the support of the
Government.

The Law No. 2 of 1992 on Insurance (Insurance Law) has been amended by the New Insurance Law
(see Key Regulatory Updates Insurance Law). Two government regulations in relation to the insurance
industry were passed in 2008. Government Regulation No. 39 of 2008 (Regulation No. 39 of 2008) concerning
the Second Amendment to Government Regulation No. 73 of 1992 concerning the Conduct of Insurance
Business regulates the scope of an insurance business and the capital requirements of insurance and insurance-
related companies, including takaful or Sharia-compliant insurance companies. This regulation also requires an
insurance company to set aside funds equal to 20.0% of its issued capital to serve as a guarantee fund for policy
holders to protect them in the event the company is liquidated or closed by the Government. Pursuant to
Regulation No. 39 of 2008, the Minister of Finance issued Minister of Finance Regulation No. 53/PMK.010.2012
concerning Financial Soundness of Insurance and Reinsurance Companies that further regulates compliance by
insurance and reinsurance companies in relation to the solvability rate (which is required to be equal to risk-
based capital), management of assets for investment, unit linked products, and guaranteeing of policyholders
funds. In its effort to recapitalize insurance companies, Government Regulation No. 81 of 2008 concerning the
Third Amendment to Government Regulation No. 73 of 1992 concerning the Conduct of Insurance Business
introduced new minimum capital requirements for insurance and reinsurance companies. Insurance companies
were required to have a minimum capital of Rp40 billion for 2010, Rp70 billion for 2012 and Rp100 billion for
2014. Reinsurance companies were required to have a minimum capital of Rp100 billion in 2010, Rp150 billion
for 2012 and Rp200 billion for 2014.

Pension funds are divided into two categories: employer pension funds and financial institution pension
funds. Employer pension funds may be run either as defined benefit plans or as defined contribution plans, while

148
financial institution pension funds may only be run as defined contribution plans. As of September 30, 2014,
there were 265 pension funds actively operating including 240 employer pension funds and 25 financial
institution pension funds. As of September 30, 2014, the total net assets and investments of pension funds was
Rp178.99 trillion and Rp173.41 trillion, respectively, compared to Rp169.00 trillion and Rp164.15 trillion,
respectively, at the end of March 31, 2014. The investment portfolios of the pension funds consist largely of
corporate and government bonds, followed by bank deposits, stocks, mutual funds, land and buildings and other
types of investments. As pension funds have grown, their preferences for portfolio investment has shifted from
short-term investments to longer-term investments. As of September 30, 2014, there were 265 pension fund
business licenses.

Indonesias other non-bank financial institutions include finance companies, guarantee companies, venture
capital companies, Indonesia export credit agencies, infrastructure financing companies and secondary mortgage
facilities companies. Finance companies provide financing through leasing, factoring, credit cards and consumer
finance. As of December 31, 2013, there were 202 finance companies. Total assets and investments of financing
companies as of December 31, 2013 were Rp400.6 trillion and Rp348.0 trillion, respectively. As of March 31,
2014 there were 201 finance companies. Total assets and investments of financing companies as of March 31,
2014 were Rp402.1 trillion and Rp352.4 trillion, respectively. As of September 30, 2014 there were 200 finance
companies. Total assets and investments of financing companies as of September 30, 2014 were Rp417.2 trillion
and Rp365.9 trillion, respectively.

The following table sets forth the total number of such other non-bank financial institutions, and related
total assets and total investments as of September 30, 2014.

Number of
Non-bank financial institution companies Total assets Total investments
(in trillions of Rupiah) (in trillions of Rupiah)
Finance companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 200 417.2 365.9
Guarantee companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 9.4 7.0
Venture capital companies . . . . . . . . . . . . . . . . . . . . . . . . . 70 9.4 6.7
Indonesia export credit agencies . . . . . . . . . . . . . . . . . . . . . 1 58.5 8.9
Infrastructure financing companies . . . . . . . . . . . . . . . . . . . 2 13.2 7.9
Secondary mortgage facilities companies . . . . . . . . . . . . . . 1 8.1 1.0
Source: OJK

In 2010 and 2011, various Minister of Finance regulations were issued with respect to non-bank financial
institutions. Such regulations in 2010 concerned the implementation of Sharia principles to insurance and
reinsurance business, the implementation of KYC principles for non-bank financial institutions, supervision of
Indonesian export financing institutions, inspection of insurance companies and share ownership and
capitalization of a securities company.

Such regulations in 2011 concerned the financial soundness of Sharia insurance and reinsurance companies,
the legalization of the establishment of financial institution pension funds and the amendment of regulations on
pension funds deriving from financial institution pension funds, the financial soundness of the provident saving
fund program for civil servants, and credit guarantee and re-guarantee companies.

On March 15, 2012, the Minister of Finance issued regulation No. 43/PMK.010/2012 regarding certain
down payment requirements when financing companies provide loans used in purchasing motor vehicles. This
regulation is intended to prohibit unfair competition on down payment requirements by establishing loan to value
ratio requirements, promoting prudent practices in extending financing, minimizing moral hazard and default
risks, and providing a level playing field with respect to requiring down payments in the financing industry. To
improve the protection for investors and the effectiveness of securities transaction supervision, on June 14, 2012,
Bapepam-LK issued new regulations concerning the implementation of SID for all investors participating in the
Indonesia Capital Market.

149
Bank Assets and Liabilities
The following table sets forth the consolidated balance sheets of the commercial banks as of the dates
indicated.

Consolidated Balance Sheet of Commercial Banks

As of December 31, As of September 30,
2009 2010 2011 2012 2013 2014
(in trillions of Rupiah)
Assets
Loans . . . . . . . . . . . . . . . . . . . . . . . . . . 1,437.9 1,765.8 2,200.0 2,725.7 3,319.8 3,592.1
Interbank Assets . . . . . . . . . . . . . . . . . . 261.5 228.5 226.9 166.6 171.9 213.8
Placements at Bank Indonesia . . . . . . . 397.9 581.9 754.0 580.7 506.5 579.8
Securities (including
Government Bonds) . . . . . . . . . . . . . 306.3 281.1 427.0 429.9 520.6 559.0
Equity Participation . . . . . . . . . . . . . . . 10.0 12.4 11.0 15.1 15.7 20.4
Other Claims . . . . . . . . . . . . . . . . . . . . 39.9 43.8 63.4 176.5 183.1 239.2
Others . . . . . . . . . . . . . . . . . . . . . . . . . . 80.6 95.3 107.9 168.1 236.9 214.4
Total Assets . . . . . . . . . . . . . . . . . 2,534.1 3,008.9 3,652.8 4,262.6 4,954.5 5,418.8
Liabilities
Third Party Funds . . . . . . . . . . . . . . . . 1,973.0 2,338.8 2,784.9 3,225.2 3,603.6 3,995.8
Liabilities owed to Bank Indonesia . . . 8.0 6.1 5.1 1.9 1.8 2.4
Interbank Liabilities . . . . . . . . . . . . . . . 134.5 152.7 221.2 124.7 115.8 145.4
Securities . . . . . . . . . . . . . . . . . . . . . . . 14.9 17.2 23.3 42.1 54.5 52.9
Borrowing . . . . . . . . . . . . . . . . . . . . . . 21.6 29.3 32.4 75.3 112.9 117.0
Other Liabilities . . . . . . . . . . . . . . . . . . 22.9 14.6 21.9 60.3 85.1 87.9
Guarantee Deposits . . . . . . . . . . . . . . . 6.0 4.8 5.0 5.0 5.9 5.0
Others . . . . . . . . . . . . . . . . . . . . . . 92.4 116.8 150.9 202.7 352.2 318.3
Capital:
Paid in Capital . . . . . . . . . . . . . . . . . . . 96.3 105.5 112.7 123.3 138.1 151.2
Reserves . . . . . . . . . . . . . . . . . . . . . . . . 24.1 27.8 34.2 38.7 50.6 66.0
Current Earnings/Loss . . . . . . . . . . . . . 45.2 57.3 75.1 92.8 106.7 85.4
Retained Earnings/Loss . . . . . . . . . . . . 52.8 75.0 106.7 150.0 201.1 262.1
Estimates of Additional Paid in
Capital . . . . . . . . . . . . . . . . . . . . . . . 41.0 59.7 79.4 89.4 92.6 93.7
Others . . . . . . . . . . . . . . . . . . . . . . . . . . 1.5 3.0 4.2 31.2 33.6 35.7
Total Liabilities . . . . . . . . . . . . . . 2,534.1 3,008.9 3,652.8 4,262.6 4,954.5 5,418.8

Source: Bank Indonesia up to December 31, 2013. OJK from January 1, 2014 onwards.

As of September 30, 2014, the four state-owned banks together controlled approximately 34.9% of the total
assets of the banking system and securities (including SBI, recapitalization bonds, Treasury Bills, Bonds and
Others), which comprised approximately 11.0% of all bank assets. At the same time, credit to third parties
represented approximately 67.3% of the assets of banks, compared with approximately 66.5% as of
December 31, 2013. Interest income from securities (including SBI, Treasury Bills, Bonds and Others)
represented approximately 5.0% of the operating income of banks as of September 30, 2014, representing an
increase from 4.4% as of December 31, 2013.

Interest income from credit to third parties represented approximately 56.0% of the operating income of
banks as of September 30, 2014, compared with approximately 55.5% as of December 31, 2013. Most time
deposits in the banking sector are short-term, denominated in terms of one to three months. As of September 30,
2014, time deposits increased (year-on-year) by 23.1%, savings deposits increased by 6.7%, while demand
deposits increased by 9.9%.

Loans grew by 13.2% as of September 30, 2014 (year-on-year), compared to 23.1% growth as of
September 30, 2013 (year-on-year). Earnings were robust, with return on assets of the industry at 3.0% and
estimated to remain stable. Liquidity is well managed as liquid assets are well maintained against deposits with a
ratio of 16.1% and a loan to deposit ratio of about 88.9%. On October 31, 2014, the CAR level was recorded at
19.5% and is expected to remain above the minimum requirement of 8.0%.

150
 The following table shows the average capital adequacy ratio of the banking system for the periods
indicated:

Average Capital Adequacy Ratios

As of
As of December 31, October 31,
2009 2010 2011 2012 2013 2014
(percentages)
CAR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17.4 17.2 16.1 17.4 18.1 19.5

Source: Bank Indonesia

Non-Performing Loans
Since the beginning of 2005, Indonesian banks have been required to calculate their NPLs using new
international best practices-based standards that require banks to classify as non-performing all loans to any
borrower if any of that borrowers loans are non-performing. Under regulation No. 14/15/PBI/2012 concerning
the Assessment of Commercial Bank Asset Quality, banks nationwide are required to apply the same uniform
loan classification system to all loans meeting one of three criteria: (i) loans greater than Rp10 billion that are
made to one borrower or one similar project; (ii) loans between Rp1 billion and Rp10 billion that are made to one
of the 50 largest debtors of the lending bank; and (iii) loans based on joint financing to one borrower or one
project.

As of December 31, 2009 the gross and net NPL ratios were 3.3% and 0.3% respectively. The gross NPL
ratio was 2.6%, as of December 31, 2010, due to the write-offs of NPLs, restructuring and extension of new
loans, which resulted in a lower gross NPL than December 31, 2009.

The gross NPL ratio was 2.2%, as of December 31, 2011, due to the write-offs of NPLs, restructuring and
the extension of new loans which resulted in a lower gross NPL than December 31, 2010.

The gross NPL ratio was 1.9%, as of December 31, 2012, due to the write-offs of NPLs, restructuring and
extension of new loans, significantly lower than during both the 1997/1998 crisis and global economic crisis in
2008.

The gross NPL ratio was 1.8%, as of December 31, 2013, due to the write-offs of NPLs. As of October 31,
2014, the gross NPL ratio was 2.2%.

The following table shows the gross NPL ratios as of the end of each period indicated.

Non-Performing Loans Ratios

As of
As of December 31, October 31,
2009 2010 2011 2012 2013 2014
(percentages)
Gross NPL ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.3 2.6 2.2 1.9 1.8 2.2

Source: Bank Indonesia

151
 The following table sets forth information regarding loans issued by commercial banks by risk category and
type of loan.

Risk Classification of Aggregate Assets of Commercial Banks by Type of Loans(1)(2)

December 31, 2013 October 31, 2014

Working Consumer Investment Working Consumer Investment
capital loan loan Total capital loans loan loan Total
(in trillions of Rupiah)
Pass(3) . . . . . . . . . . . . . 1,522.2 848.2 762.6 3,133.0 1,590.7 920.4 810.8 3,321.8
Special mention . . . . . . 52.6 47.7 27.8 128.1 63.3 54.5 35.0 152.8
Substandard . . . . . . . . . 5.4 2.4 3.3 11.0 9.1 3.0 7.0 19.1
Doubtful . . . . . . . . . . . 3.9 2.7 2.1 8.7 7.1 3.3 3.9 14.3
Loss . . . . . . . . . . . . . . . 22.5 8.1 8.2 38.9 28.4 9.0 12.7 50.1
Total . . . . . . . . . . . . . . 1,606.6 909.1 804.1 3,319.7 1,698.6 990.2 869.3 3,558.1

Source: Bank Indonesia up to December 31, 2013, OJK from January 1, 2014 onwards.
(1) Indonesia asset classification guidelines take into account various criteria, among them timely payment. Loans being paid on time are
rated Pass; loans overdue by less than three months, six months and nine months are rated Special Mention, Substandard and
Doubtful, respectively; and loans that are more than nine months in arrears are rated Loss.
(2) Not including credit that is channeled by commercial banks from international sources to domestic projects.
(3) In line with the trend of declining NPL ratios, outstanding commercial bank loans are primarily classified as Pass.

Rescue of Bank Mutiara

PT Bank Mutiara Tbk, formerly PT Bank Century Tbk (Bank Mutiara), a small commercial bank,
experienced a deterioration of its asset quality, including due to fraudulent activity by the banks former
management in late 2008 amidst the global financial crisis. This prompted the banks rescue by the Government
in November 2008 through a deposit guarantee and ensuing takeover to prevent any adverse consequential effects
on the broader banking system at a time of heightened market anxiety. Bank Mutiara is now a government-
owned bank and is controlled by IDIC. To date, IDIC has injected into Bank Mutiara a total of Rp8.01 trillion by
way of a temporary capital placement for the subscription of shares in the form of convertible preferred stock,
making IDIC the majority shareholder of Bank Mutiara. BPK, under the instruction of DPR, conducted an
investigative audit of Bank Mutiara, spearheaded the rescue process and drafted the law backing the decision to
rescue Bank Mutiara. BPK submitted its first stage investigation report on November 23, 2009. Subsequently,
BPKs follow up investigation discovered irregular transactions which violated prevailing laws and caused losses
to the Government and Bank Mutiara, both prior to and after being taken over by IDIC. On December 23, 2011,
BPK submitted its follow up investigation report to DPR. On December 11, 2012, the DPR extended the period
of the DPR Monitoring Team on Bank Mutiara until December 2013. Separately, in December 2009 KPK
initiated an investigation related to the Bank Mutiara case. This investigation resulted in Budi Mulya, the former
Deputy Governor of Bank Indonesia being sentenced to 10 years in prison and fined Rp500 million. In separate
investigations, the Attorney Generals office and the PPATK have each concluded that there was no evidence of
fraud in the decision to bail out Bank Mutiara.

The resolution of Bank Mutiara by the IDIC has been carried out based upon a Decision by the Committee
for the Stability of the Financial System No. 04/KSSK.03/2008, dated November 21, 2008 and a Decision by the
Coordination Committee No. 01/KK.01/2008 dated November 21, 2008. These decisions determined that PT
Bank Century Tbk was a failed bank that posed a systemic risk. Resolution of the bank was handed over to IDIC
pursuant to its authority based on the Perpu No. 4 of 2008 and IDIC Law No. 24 of 2004 as amended by Law
No. 7 of 2009.

The resolution focused on efforts to increase the banks value and carry out share sales of the bank. It is
based on the responsibility of IDIC to sell all of the banks shares within three years of the handling process at an
optimal rate of return (the minimum amount set as Rp8.01 trillion or around U.S.$728 million; U.S.$1 =
Rp11,000). If an optimal rate of return cannot be obtained, the time frame for the share offer can be extended on
a maximum of two occasions, with each extension lasting up to one year. The term of the last extension expired
on November 21, 2013. Consequently, if an optimal return is still not obtained, the IDIC is to sell the shares
without consideration of the optimal rate of return (i.e. at possibly less than Rp8.01 trillion) within one year after
the expiry of the second extension (sixth year).

152
 IDIC has executed divestment programs since 2011 and mandated PT Danareksa Sekuritas as financial
advisor. IDIC has appointed Hadiputranto, Hadinoto, and Partners as legal advisor to assist with the divestment
process. After five years of the divestment process, IDIC could not dispose of Bank Mutiara at an optimum
return.

In the sixth year of the divestment program IDIC reannounced the process of the divestment of Bank
Mutiara. The announcement took place on March 3, 2014. As a result, on September 12, 2014, IDIC signed a
Conditional Sales and Purchase Agreement with J-Trust after a series of investor selection process. The
ownership transfer process was completed as of November 20, 2014.

Capital Markets and Capital Markets Regulation

Indonesias economy has traditionally relied predominantly on the banking sector to finance growth. The
ownership structure of companies in Indonesia is characterized by concentrated ownership, family-owned
businesses and controlling shareholders. Companies with these types of ownership structures often seek
financing from banks rather than from capital markets. The availability of subsidized loans from state-owned
banks prior to 1991 also gave companies less incentive to seek funding from the capital markets. To finance the
higher levels of growth that the Government seeks to achieve, credits from the banking sector need to grow
substantially. Diversifying sources of finance is an important element of the Governments efforts to reduce
economic vulnerability and strengthen the financial sector.

In 1976, the Government established the Capital Market Implementation Agency (Badan Pelaksana Pasar
Modal, or Bapepam) to develop and regulate the countrys capital markets. The first shares were listed on the
JSX in 1977; later, the official name of Bapepam was changed to Capital Market Supervisory Agency (Badan
Pengawas Pasar Modal) to reflect the shift in emphasis from development to regulation and supervision. The
promulgation of the Capital Market Law No. 8 of 1995 on Capital Markets (Capital Market Law) provided the
Indonesian capital markets with a sound legal foundation and extended Bapepam authority in the fields of
regulation, development, supervision and law enforcement. The law also clarifies the authority and
responsibilities of self-regulatory organizations, capital market institutions and professionals and firms
conducting business in the capital markets. According to the Capital Market Law, Bapepam is responsible for the
guidance, regulation and day-to-day supervision necessary to implement orderly, fair and efficient capital
markets and to protect the interests of investors and the public. As part of the ongoing reorganization of the
Ministry of Finance, and in an effort to centralize regulation and strengthen oversight of the non-bank financial
sector, the Government approved a merger of Bapepam with the Ministry of Finances Directorate General of
Financial Institution (DJLK). In 2006, the two agencies were merged into a single new unit called the Capital
Markets and Financial Institutions Supervisory Agency (Bapepam-LK). Bapepam-LK assumed the
responsibilities previously held by DJLK and Bapepam. Pursuant to the OJK Law, as of December 31, 2012, the
authority of Bapepam-LK was transferred to OJK.

OJK will regulate the banking sector by monitoring, among other things, bank office openings, ownership,
acquisitions, licenses, fund sources, liquidity, asset quality, credit lending, reserves, debtor information systems,
accounting standards, risk management, and bank governance. For accountability purposes, OJK will provide
annual activity reports to the President of the Republic of Indonesia and to the House of Representatives. The
OJK budget for operational and administrative activities shall come from the state budget and from fees collected
from practitioners in financial services.

From December 31, 2012 OJK took over the duties and functions of Bapepam-LK in order to regulate and
supervise the Capital Market and Non-Bank Financial Institutions. OJK has taken over the regulatory and
supervisory duties relating to bank activities from Bank Indonesia as of December 31, 2013.

On October 30, 2007, the shareholders of the JSX and the Surabaya Stock Exchange (SSX) agreed to a plan
to merge the exchanges into a single new entity, the Indonesia Stock Exchange (IDX). The merger was
completed on November 30, 2007.

153
 The following table sets forth key indicators regarding the IDX and any securities traded on the IDX as of
December 31, 2014.

Indonesian Stock Exchange

IDX

Market capitalization (in trillions of Rupiah) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,228

Listed shares (in billions of shares) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,001.5(1)
Average daily transaction value (in billions of Rupiah) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,006
Average daily transaction volume (in millions of shares) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,484
Source: OJK and Indonesia Stock Exchange
(1) As of September 30, 2014.

On September 30, 2014 the IDX composite price index closed at 5,137.6. On December 30, 2013 the IDX
composite price index closed at 4,274.2, a 1.0% decrease compared to 4,316.69 on December 28, 2012. On
December 28, 2012, the IDX composite stock price closed at 4,316.69, an increase of 12.9% compared to 3,821.9
on December 30, 2011. The IDX composite stock price index closed at 3.703.5 on December 30, 2010, at 2,534.4
on December 30, 2009 and 1,355.4 on December 30, 2008. As of December 28, 2012 the IDX average daily
transaction value was Rp4,537 billion or 4,283.6 million shares during the period from January 2012 to
December 2012. From January 1, 2013 to December 31, 2013, the average daily trading value on the IDX was
Rp4,850 billion and the average daily trading volume was 4,951 million shares. From January 1, 2014 to
December 31, 2014, the average daily transaction value was Rp6,006 billion and the average daily transaction
volume was 5,484 million shares.

As of September 30, 2014, thirteen companies undertook initial public offerings and listed their shares on
the IDX, raising approximately Rp4.14 trillion. During 2013, 30 companies undertook initial public offerings and
listed their shares on the IDX, raising approximately Rp16.7 trillion. In 2012, 22 companies undertook initial
public offerings and listed their shares on the IDX, raising approximately Rp27.1 trillion. In 2011, 2010, 2009,
and 2008, 25, 23, 12 and 11 Indonesian companies respectively undertook initial public offerings and listed their
shares on the IDX, raising approximately Rp33.2 trillion, Rp47.1 trillion, Rp9.4 trillion and Rp11.3 trillion,
respectively.

The Indonesia Stock Exchange has two indices based on Sharia stock, the Jakarta Islamic Index (JII) and
the Indonesia Sharia Stock Index (ISSI).

The JII is a stock market index established on the Indonesian Stock Exchange. The JII launched in 2000 and
consists of the 30 largest Sharia-compliant listings by market capitalization. As of December 28 2012, the JII
closed at 594.79, an increase of 10.8% compared to 537.03 on December 2011. As of December 31, 2012, the
market capitalization of the JII was Rp1,672 trillion an increase of 18.2% compared to Rp1,414.98 trillion on
December 2011. On March 28, 2014, the JII closed at 640.41. On December 30, 2013, the JII closed at 585.11, a
decrease of 1.6% compared to 594.79 on December 28, 2012. On December 30, 2013, the market capitalization
of the JII was Rp1,682 trillion as compared to Rp1,672 trillion on December 31, 2012. As of December 31, 2014
the market capitalization of the JII was Rp1,944.5 trillion.

The IDX launched the ISSI on May 12, 2011. The ISSI is comprised of 316 Sharia stocks which are listed
on the Indonesia Stock Exchange. As of December 31, 2012, the ISSI closed at 145.0 and the market
capitalization was Rp2,515.6 trillion. On December 30, 2013, the ISSI closed at 143.71, a decrease of 0.9%
compared to 145.0 on December 30, 2012. On March 28, 2014, the ISSI closed at 157.35. As of December 30,
2013, the market capitalization of the ISSI was Rp2,558.5 trillion. As of December 31, 2014, the market
capitalization of the ISSI was Rp2,946.9 trillion.

On November 14, 2012, the Board of Directors of IDX issued Decree No. Kep-00399/BE/11-2012
concerning changes of trading time in IDX to harmonize trading time of IDX with other stock exchanges in the
region and to give additional trading time to investors in central and eastern Indonesia. With this Decree, the IDX
regulation regarding equity trading (IDX Regulation Number II-A of Equity Trading) has been revised to
reflect the change of the IDX trading hours in order to: (i) align with other regional exchange trading times;
(ii) accommodate investors living in the central and eastern regions of Indonesia; (iii) and facilitate market
participants in understanding the IDX rules.

A Decree of the Board of Directors of IDX related to Guidance on Handling the Continuity of Trading on
the Stock Exchange in Emergency was passed in order to explain the provisions of IDX Rule No. II-A on Equity

154
Trading, which states that the IDX can suspend trading in the event of emergencies. The decree also explains
what conditions constitute an emergency and describes the processes around continuance of trading during
emergencies.

The Decree of the Board of Directors of IDX related to the Exchange Policy on The Implementation of
Amendments or Cancellation Exchange Transaction on Negotiations Market establishes the imposition of fines
as sanctions for the correction or cancellation of a transaction on the Negotiations Market. This is to compensate
for the market impact relating to the difference between the distributed trade data and the real time transaction
data recapitulation in the afternoon, and the resulting delay in the distribution process of trade reporting to market
participants.

The LQ45 is an index that consists of 45 company listings that fulfill certain criteria, including criteria
relating to market capitalization and transaction value. As of December 2012, the LQ45 closed at 735.04, an
increase of 9.1% compared to 673.51 as of December 31, 2011. As of December 31, 2012, the market
capitalization of the LQ45 was Rp2,552 trillion, an increase of 9.5% compared to Rp2,331 trillion on December
2011. As of December 31, 2013, the LQ45 closed at 711.14, a decrease of 3.3% compared to 735.04 as of
December 31, 2012 and the market capitalization was Rp2,544 trillion, a decrease of 0.4% compared to
Rp2,552 trillion as of December 31, 2012. As of March 28, 2014, the LQ45 closed at 799.51. As of
September 30, 2014, the market capitalization of the LQ45 was Rp3,242 trillion.

On April 23, 2012 IDX launched a new share price index called IDX30, which consists of 30 stocks selected
from the constituents of LQ45. The index is expected to be used as a stock-based investment product and can
serve as a reference for stocks with high liquidity and large capitalization. The day basis for calculation IDX30
index is dated December 30, 2004 with an initial index of 100. The index calculation method is similar to the
method of calculating the IDX of other indices, using the market capitalization weighted average. On
December 28, 2012 IDX30 closed at 372.3. On December 31, 2013 IDX30 closed at 362.4 and the market
capitalization was Rp2,539 trillion. On September 30, 2014 IDX30 closed at 410.4 and the market capitalization
was Rp2,883 trillion.

On January 31, 2013 IDX launched SMInfra18 stock price index in cooperation with PT Sarana Multi
Infrastructure (SMI). This index measures the performance of 18 stock prices in the infrastructure sector. The
index is expected to be a reference to investors in the infrastructure sector. In the future, MSInfra18 index is
projected to be a reference foundation for capital market products such as mutual funds, ETFs and other
derivative products. IDX and SMI will conduct a periodic review twice a year. The first review took place in
April 2013, and the second took place in October 2013. On December 31, 2013 SMInfra18 closed at 292.3 and
the market capitalization was Rp744.26 trillion. On September 30, 2014 SMInfra18 closed at 366.7 and the
market capitalization was Rp926.34 trillion.

From January 2, 2013, the new IDX trading time is: (i) pre-opening session from 08:45 to 08:55; (ii) first
session for all markets from 09:00 to 12:00 from Monday to Thursday and 09:00 to 11:30 on Friday; (iii) second
session of regular market from 13:30 from Monday to Thursday and from 14:00 on Friday, until 15:49:59; and
(iv) second session of negotiation market from 13:30 from Monday to Thursday and from 14:00 on Friday, until
16:15.

Additional trading sessions for regular markets are also introduced: (i) pre-closing session, from 15:50 to
16:00; and (ii) post-trading session, from 16:05 to 16:15.

Effective as of January 6, 2014, IDX reduced round lot trading units from 500 equity stocks per lot to
100 equity stocks per lot. Auto rejection on offer to sell or purchase with the Jakarta Automated Trading System
was also introduced and is designed to improve share liquidity. With these revisions, IDX Regulation Number II-
A of Equity Trading was revised by the issuance of Board of Directors of IDX Decree No. Kep-00071/BE/11-
2013 dated November 8, 2013 on Change of Trading Unit and Price Fraction. This 2013 Decree replaced Board
of Directors of IDX Decree No.Kep-00399/BE/11-2012.

155
 The following table sets forth certain information on the corporate bond market in Indonesia as of the dates
indicated.

Corporate Bonds Outstanding

As of
As of December 31, September 30,
2009 2010 2011 2012 2013 2014

Listed bond Issuance, at period-end . . . . . . . . . . 183 188 199 210 221 205
Listed bond issuers, at period-end . . . . . . . . . . . 88 86 96 99 109 102
Listed Islamic bonds issues, at period-end . . . . . 28 31 31 32 36 32
Total outstanding value of Rupiah-denominated
bonds (in trillions of Rupiah), at
period-end . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88.5 114.9 147 189.4 220.582 220,201
Total outstanding value of U.S. dollar-
denominated bonds (in millions of U.S.$), at
period-end . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80 100 100 100
Trading volume (in billions of Rupiah) . . . . . . . 38,850 90,000 125,850 160,118 185,719 114,939
Sources: Indonesian Stock Exchange, OJK and Ministry of Finance

Indonesian corporate bonds have been trading more actively since 2004, helped by declining SBI interest
rates and favorable tax treatment for listed bonds. The trading volume and total outstanding amount of Rupiah-
denominated bonds in 2010 was Rp90 trillion and Rp114.9 trillion, respectively, compared to the trading volume
and total outstanding amount of Rupiah-denominated bonds in 2009 of Rp38.9 trillion and Rp88.5 trillion,
respectively. In 2011, the trading volume and total outstanding amount of Rupiah-denominated bonds was
Rp125.9 trillion and Rp147.0 trillion, respectively. In 2012, the trading volume and total outstanding amount of
Rupiah-denominated bonds was Rp160.1 trillion and Rp189.4 trillion, respectively. In 2013, the trading volume
and total outstanding amount of Rupiah-denominated bonds was Rp185.7 trillion and Rp220.6 trillion,
respectively. As of September 30, 2014, the trading volume and total outstanding amount of Rupiah-denominated
bonds was Rp115.0 trillion and Rp220.2 trillion, respectively.

In 2009 and 2010, there were 29 and 26 public bond offerings by Indonesian companies, respectively,
raising approximately Rp31.1 trillion and Rp36.6 trillion, respectively, for these companies.

As of December 14, 2012, there were 45 public bond offerings by Indonesian companies in 2012, raising
approximately Rp53.8 trillion for these companies. In 2012, there was one issuance of a U.S. dollar-denominated
bond, bringing the total outstanding value of U.S. dollar-denominated bonds at the end of the period to
U.S.$100 million. During 2013, there were 11 public bond offerings by Indonesian companies which raised
approximately Rp6.2 trillion. In the first six months of 2014, there were seven public bond offerings by
Indonesian companies in 2014, raising approximately Rp8.6 trillion for these companies. In 2013 and in the first
six months of 2014, there were no issuances of U.S. dollar-denominated bonds by Indonesian companies.

Government bonds are also actively traded in the capital markets. The amount of Rupiah-denominated
government bonds outstanding has steadily increased from 2009 through 2013, totaling Rp582 trillion in 2009,
Rp641 trillion in 2010, Rp724 trillion in 2011, Rp820 trillion in 2012 and Rp996 trillion in 2013. As of
December 31, 2014 the amount of Rupiah-denominated government bonds outstanding totalled Rp1,099 trillion.
Since resuming its bond-issuing activities, the Government has taken a number of steps to promote the
development of sound government bond markets. See Public Debt Development of the Secondary Market for
Domestic Securities of the Government.

156
 The following table sets forth certain information on the corporate Sukuk market in Indonesia as of the dates
indicated.

Corporate Sukuk Outstanding

As of
As of December 31, September 30,
2008 2009 2010 2011 2012 2013 2014

List of Corporate Sukuk

Outstanding . . . . . . . . . . . . . . . . . . . 24 30 32 31 32 33 32
Total Outstanding value of Corporate
Sukuk (in billions of Rupiah) . . . . . 4,958.4 5,621.4 6,121.0 5,876.0 6,275.5 7,538.0 6,658.0
Sources: OJK and Ministry of Finance

As of December 31, 2013, there were a total of 33 outstanding corporate sukuk, with a total outstanding
amount Rp7,538.0 billion, an increase of 20.1% compared to a total outstanding amount of Rp6,275.5 billion as
of December 31, 2012. As of December 31, 2012, there were a total of 32 outstanding corporate sukuk. As of
September 30, 2014, the total outstanding corporate sukuk had decreased by one to 32 with a total outstanding
value of Rp6,658.0 billion. The market share of outstanding sukuk is relatively insignificant compared to the
total outstanding amount of bond and sukuk.

The following table sets forth certain information regarding the mutual fund industry in Indonesia as of the
dates indicated.

Mutual Funds
As of
As of December 31, December 29,
2009 2010 2011 2012 2013 2014

Number of funds . . . . . . . . . . . . . . . . . . . . . . . 610 612 646 754 823 890

Number of unit holders . . . . . . . . . . . . . . . . . . 357,192 353,704 476,940 509,149 539,383(1) 491,754
Number of Sharia mutual funds . . . . . . . . . . . . 46 48 50 58 65 73
Number of IDX-traded mutual funds
(Exchange Traded Funds) . . . . . . . . . . . . . . 2 2 2 5 7
Net asset value (in billions of Rupiah) . . . . . . 112,983 149,087 168,237 212,592 192,544 241,330
Sources: OJK and Ministry of Finance
(1) As of May 31, 2013.

The total NAV of mutual funds increased to Rp113 trillion as of December 31, 2009. Total NAV of all
mutual funds as of December 31, 2009 represented by the NAV of fixed income mutual funds was 17.2% as of
December 31, 2009. As of December 31, 2010, the total NAV of mutual funds increased by 32.0% to
Rp149.1 trillion compared to December 31, 2009 primarily due to an increase in stock prices. As of
December 31, 2011 the total of NAV of mutual funds was Rp168.2 trillion, an increase of 12.8% compared to the
NAV at the end of 2010. As of December 31, 2012 the total of NAV of mutual funds was Rp212.6 trillion, an
increase of 26.4% compared to the NAV at the end of the previous year. As of December 31, 2013, the total
NAV of mutual funds was Rp192.5 trillion. As of December 29, 2014 the total NAV of mutual funds was
Rp241.3 trillion.

In 2007, a new financial product was introduced in the Indonesian mutual fund industry; namely, the
exchange-traded index mutual fund. As of December 31, 2010, there were two exchange-traded index funds:
(i) an equity index fund based on the LQ-45 Index (a stock market index for the IDX consisting of 45 companies
that fulfill certain criteria such as being included in the list of top 60 companies with the highest market
capitalization value in the last 12 months) of the 45 Indonesian publicly listed companies with the most liquid
public floats on the IDX; and (ii) a bond index fund. The total NAV of these two index mutual funds was
approximately Rp472.9 billion and Rp1,568.85 billion as of December 31, 2011 and December 31, 2012,
respectively.

Bapepam-LK introduced rules to strengthen its supervisory and enforcement capacity over Indonesias
capital markets and to promote sound and transparent capital markets. Over the past few years, Bapepam-LK also

157
exercised its authority over listed companies by issuing new regulatory guidelines to make corporate
management and audit committees more directly responsible for financial reports, as well as issuing rules on
public offerings by shareholders and procedures for conducting quasi-reorganizations. Bapepam-LK also issued
revised regulations on the content of listed companies annual reports, and required issuers of debt securities to
publicly release all ratings of their debt securities.

In 2004, Bapepam (the predecessor agency of Bapepam-LK) issued a series of new regulations and
revisions to existing regulations, including those which relate to the mutual fund industry. In particular, to
enhance the development of Indonesias mutual fund industry, Bapepam issued regulations governing the scope
of mutual fund advertising, increasing the responsibilities of mutual fund managers and strengthening the legal
protections for mutual fund investors. In addition, as part of its initiative to encourage the development of a
vibrant mutual fund industry in Indonesia, Bapepam revised a regulation to provide mutual fund managers with a
price reference for determining the fair market value of fixed income securities traded over the counter. Bapepam
also issued new rules in 2004 setting stricter corporate governance standards for directors and commissioners of
Indonesian public companies.

In July 2005, Bapepam issued new guidelines for capital protected funds, guaranteed funds and index funds,
which are types of mutual funds that are already well-developed in the international mutual fund industry. The
introduction of new types of funds should provide investors more choices to suit their investment objectives. In
2006, Bapepam-LK had approved registration statements for the public offering of 78 capital protected funds.

In 2006, as a response to the decline in the total NAV of the mutual funds industry in 2005, Bapepam-LK
issued nine new regulations and revised two existing regulations related to the licensing, registration and
responsibilities of mutual fund selling agents and mutual fund representatives and to the development of the local
bond markets by establishing price discovery mechanisms and integrated trade reporting in both the stock
exchange and over-the-counter markets. Bapepam-LK also issued new guidelines for exchange-traded funds in
2006. These guidelines set forth a form of collective investment contract so that units of all types of investments
funds, including protected funds, guaranteed funds and index funds, could be traded on the stock exchanges.
Bapepam-LK also promulgated new regulations designed to enhance transparency in bond pricing mechanisms
by providing for the establishment of bond pricing agencies, whose role will be to issue reference prices based on
the fair market value of fixed-income securities.

In July 2006, the Government and Bank Indonesia issued a financial sector policy package to maintain and
strengthen stability in the financial sector, to increase market confidence, to diversify funding sources for the
business sector and to improve market efficiency for the financial sector by promoting competition among banks,
non-bank financial institutions and the capital markets. The package included 55 policy actions jointly
implemented by Bank Indonesia, Bapepam-LK, the IDIC, the Ministry of State-Owned-Enterprises and the
Coordinating Ministry for Economic Affairs.

Some of the policy actions undertaken under the financial sector policy package have been designed to help
strengthen the financial sector. For instance, to enhance the performance of Indonesias state-owned banks, the
Government conformed the regulations for resolving NPLs for state-owned banks to those that apply to
commercial banks. The financial sector policy package also includes policies designed to support the
development of capital markets products, such as bond repurchase agreements, for the purpose of diversifying
the sources of funding for business activities in Indonesia. For example, in November 2006, Bapepam-LK issued
a regulation regarding the accounting treatment for bond repurchase agreements, and in December 2006 Bank
Indonesia opened a trading facility for bond repurchase agreements.

In June 2007, the Government and Bank Indonesia issued a revised financial sector policy package to
continue the process of reform that began in 2006. Among the new policies enacted, the Government has
increased coordination among regulatory agencies by creating a multi-agency task force to combat illegal
financial transactions. In order to encourage the growth of Indonesian capital markets, it enacted tax incentives
for companies to undertake initial public offerings.

In 2007, to permit regional and local governments to broaden their sources of funding, Bapepam-LK
established a legal framework for the issuance of municipal bonds, including regulations relating to procedural
and disclosure requirements. The Government believes that this regulatory framework will enhance the ability of
local governments to fund development projects and enhance economic growth. In addition to municipal bond
and Sharia-compliant securities rules, in 2007 Bapepam-LK issued several other rules and rule revisions in

158
various areas, including the licensing of securities companies, enhanced anti-money laundering laws for the
capital market industry, the regulation of securities pricing agencies and KYC rules.

In February 2008, Bapepam-LK adopted regulations governing the formation, management and governance
of private equity funds within Indonesia, and the registration of those funds with Bapepam-LK. As of
December 31, 2010, 97 Indonesian private equity funds have been formed and registered with Bapepam-LK,
with total net assets of Rp28.1 trillion.

On February 14, 2008, Bapepam-LK issued three regulations, two of which set new professional standards
for accountants and appraisers involved in capital markets transactions registered with Bapepam-LK and one of
which is a new rule establishing a legal framework for the offering of participation interests in collective
investment contracts. On April 10, 2008, Bapepam-LK issued three new regulations related to increasing the
quality and transparency of the recruitment process for candidate commissioners of self-regulatory organizations,
such as the IDX, the securities clearing agencies and the securities depositaries.

On May 14, 2008, Bapepam-LK issued four revised capital markets regulations related to increasing the
quality of management of investment funds in the form of collective investment contracts, eliminating the
obstacles in managing asset backed securities and harmonizing the Bapepam-LK rule on the articles of
association of companies conducting public offerings and public companies with Law No. 40 of 2007 Regarding
Limited Liability Company.

On June 30, 2008, Bapepam-LK issued three revised regulations, i.e. on evaluation of board of directors and
commissioners of financing companies, on margin trading and on the takeover of public companies. The margin
trading regulation is intended to improve the securities transaction liquidity and the quality of clients securities
transaction settlement financed by securities companies, while the takeover of public companies regulation aims
to create fairness in takeovers.

With the aim of promoting professionalism and improving the supervision over capital markets
professionals, on July 3, 2008, Bapepam-LK revised a regulation on Registration of Legal Consultants to set new
professional standards and increase supervision over legal consultants conducting capital market activities. In
August 2008, Bapepam-LK also revised a rule relating to the independence and professionalism of accountants
and accounting firms conducting audits in capital markets.

In August 2008, with the aim of maintaining the independence of trust agents as representatives of
bondholders, Bapepam-LK issued a new capital market regulation regulating credit and guarantee arrangements
between issuers and trust agents. In debt securities (including sukuk) issues, trust agent roles may be performed
by a commercial bank registered with Bapepam-LK, and such banks may extend credit facilities to issuers or
guarantee issuers obligations. To prevent conflicts of interest due to the banks role as creditor and as trust agent
(where it represents bondholders), the new rule prohibits the bank acting as trust agent from extending credit to
the issuer in excess of 25.0% of the value of the securities in the bond or sukuk transaction. The trust agent is
also prohibited from guaranteeing issuers obligations to third parties. On August 6, 2008, for the convenience of
issuers and public companies proposing tax incentives to the Government, Bapepam-LK revised the rule on
Reporting of Securities Administration Agencies and Issuers and Public Companies that perform their own
securities administration, Finally, on August 13, 2008, in order to allow investment managers to submit its
reports to Bapepam-LK electronically, Bapepam-LK issued the revised capital markets regulation on Monthly
Investment Manager Activity Reports.

On October 6, 2008, Bapepam-LK issued three regulations relating to so-called capital market supporting
professionals, two of which provide for periodic reports to be submitted to Bapepam-LK by accountants and
appraisers. The third relates to professional standards and independence of appraisers in the conduct of capital
markets transactions.

In late 2009, Bapepam-LK issued two new rules related to investment management companies (IMCs). One
new rule sets new requirements for licensing of IMCs and the other requires IMCs to have necessary functions,
including a compliance function. These rules are aimed at increasing the capacity of IMCs.

Since April 13, 2010, Bapepam-LK has been requiring that any share buy-backs be carried out in
compliance with the Company Law, which allows buy-backs of up to 10.0% of paid-up capital in public
companies. The Company Law requires shareholders approval for such buy-backs. In 2008 Bapepam-LK also
issued regulations relating to the fair market value of securities in investment fund portfolios to address fair

159
market valuation issues in the context of the current financial crisis. On November 10, 2008, Bapepam-LK
revised disclosure regulations applicable to securities companies to provide for more stringent disclosure of
information and to increase management accountability for the activities of securities companies. On
November 25, 2008, Bapepam-LK revised certain regulations relating to Guidelines for Asset Backed Securities
Collective Investment Contracts, to ensure greater legal certainty in the conduct of securitization transactions and
to protect the holders of asset backed securities collective investment contracts. Bapepam-LK further issued, on
November 28, 2008, new regulations relating to the establishment of internal audit units for issuers and public
companies, to ensure more stringent risk management and better corporate governance practices. On
November 25, 2009, Bapepam-LK also introduced amendments to certain regulations relating to affiliated parties
and transactions where conflicts of interest may arise to ensure better disclosures from affiliated entities relating
to such parties and transactions and to protect unaffiliated or independent shareholders. Bapepam-LK also
amended certain regulations relating to material transactions and change of core business activities to facilitate
the business activities of equity issuers and public companies and protect public shareholders. On December 9,
2009, Bapepam-LK revised regulations to make it easier for equity issuers and public companies to raise funds
without rights issues while balancing protection for shareholders. Under the revised regulations, no pre-emptive
rights apply if a company issues new shares up to 10.0% of its paid-up capital, compared to 5.0% previously.

In order to increase transparency of credit rating agencies, on June 22, 2009, Bapepam-LK issued six
regulations relating to credit rating agencies. These regulations cover the licensing process, code of conduct,
credit rating contracts, publication, reporting and documentation in relation to such agencies.

As the largest Muslim country in the world, Indonesia has been engaged in an initiative to establish a legal
framework for the development of an investor market in Indonesia for Sharia-compliant securities, which are
securities that comply with the tenets of Islamic legal principles. Bapepam-LK has issued various regulations on
the form and issuance of Sharia-compliant commercial paper and mutual funds to enhance the growth of the
Sharia-compliant securities industry and to provide alternative mutual fund products to investors within
Indonesia as well as to attract Muslim investors outside Indonesia. In addition, in May 2008, the Government
adopted the Law No. 19 of 2008 on Sovereign sukuk (Surat Berharga Syariah Negara), which has established a
legal framework for the Government to issue Sharia-compliant commercial paper.

In 2010, Bapepam-LK issued rules concerning debt securities trust-agency agreements, a fit and proper test
for administrators and acting executors of financial institution pension funds, interim financial reports of
infrastructure financing companies, issuance of shares with different nominal values, continuous public offerings
of debt and sukuk, implementation of KYC requirements by financial institution pension funds, licensing of
securities companies that operate as investment managers, share buy-backs by issuers and public companies,
individual securities portfolio management in the interest of investors, licensing of representatives of securities
companies, internal controls of securities broker-dealers in administering client accounts, the control and
protection of securities deposited with a securities company, the maintenance and reporting of net adjusted
working capital of securities companies, guidelines on financial report presentation and guidelines for the
management of collective investment schemes.

On May 31, 2011, Bapepam-LK amended certain regulations concerning acquisition of public companies,
voluntary tender offer, guidelines for management of protected mutual funds, secured mutual funds and index
mutual funds.

On October 27, 2011, the House of Representatives passed the OJK Law to establish an independent
regulatory agency, OJK, to promote sustainable growth in the financial services sector. OJKs purpose is to
protect consumer and public interest by regulating the countrys financial services industry with a fair and
transparent decision-making process. OJK is mandated to perform regulatory and supervisory duties on financial
service activities in banking, capital market, insurance, pension fund, financing institution and other financial
service institutions. In doing so it will have the power to, among other things, implement regulations, investigate,
audit, and enforce sanctions against, and grant or revoke business licenses, registration letters, and dissolution
approvals for financial institutions and related professionals. To protect consumers, OJK also has the authority to
file legal actions against financial services institutions to recover assets based on consumer complaints and to
seek indemnification for victims of infringement. OJK consists of nine commissioners. Each commissioner term
is limited to five years and an individual may only be elected once. On July 18, 2012, the President appointed a
nine-member Board of Commissioners OJK through Presidential Decree No. 67/P of 2012. The commissioners
were inaugurated on July 20, 2012 by the Head of Supreme Court for the 2012-2017 term. The nine members of
the Board of Commissioners OJK are: (i) Muliaman D. Hadad (Chairperson); (ii) Rahmat Waluyanto (Vice
Chairperson, Chairperson of the Ethics Committee); (iii) Nelson Tampubolon (Chief Executive of Banking

160
Supervisors); (iv) Nurhaida (Chief Executive of Capital Market Supervisors); (v) Firdaus Djaelani (Chief
Executive of Non-Bank Financial Institutions Supervisors); (vi) Kusumaningtuti Sandriharmy Soetiono
(Commissioner, in charge of Education and Consumer Protection); (vii) Ilya Avianti (Commissioner,
Chairperson of the Board of Auditors); (viii) Anny Ratnawati (Ex-Officio Commissioner from the Ministry of
Finance); and (ix) Halim Alamsyah (Ex-Officio Commissioner from Bank Indonesia). For accountability
purposes, OJK will provide annual activity reports to the President of the Republic of Indonesia and to the House
of Representatives. In June 2012, the Board of Commissioners of OJK was elected. The agency has taken over
the duty of monitoring the capital market, insurance and financing institutions from the Ministry of Finance
(Bapepam-LK) as of December 31, 2012. The OJK budget for operational and administrative activities in 2013
will be derived from the state budget and fees collected from practitioners in financial services. On April 24,
2012, Bapepam-LK issued revised Rule No. II.K.1 regarding the criteria and issuance of Sharia securities. The
revised regulations aim to support the Islamic capital markets industry by setting up the criteria of Sharia
securities investments. One of the main improvements include the replacement of the required total debt against
total equity ratio of not more than 82.0% with the interest-based total debt against total assets ratio of not more
than 45.0%.

On August 1, 2012, Bapepam-LK issued revised Rule No. IX.A.14 on Aqad (Contracts) Used in Issuance of
Sharia Based Securities in Capital Market. This amendment aims to support Sharia capital markets industry by
allowing a wider range of contracts to be used in issuing Sharia securities. The main improvement is the addition
of the Istishna contract and the Musharaka contract.

To improve the protection for investor and the effectiveness of securities transaction supervision, on
June 14, 2012, Bapepam-LK issued new regulations regarding the implementation of Single Investor Identity
(SID) for all investors in a Custodian and Registrar.

On December 7, 2012 Bapepam-LK revised Rule No. IX.I.5 concerning the Guidelines on the Establishment
of the Audit Committee, in order to enhance the independence, role, and authority of the Audit Committee.

On December 13, 2012, Bapepam-LK also revised Rule No. X.H.1 in order to improve the quality of
disclosure and the administrative governance of Shares by the Issuer and the Securities Administration Agency
by improving the material substance of the report. The revision also introduced a mechanism to streamline the
reporting system to Bapepam and LK.

On December 28, 2012, Bapepam-LK revised Rule No. IX.L.1 concerning Quasi Reorganization as the
legal basis for Issuers and Public Companies that intended to do a Quasi Reorganization.

In order to secure investors whose assets are in collective custody, on December 28, 2012 Bapepam-LK
issued two new regulations: Bapepam-LK Rule No. VI.A.4 concerning Investor Protection Funds and Bapepam-
LK Rule No. VI.A.5 concerning Investor Protection Fund Operators. Rule No. VI.A.4 stipulates the formation
and scope of Investor Protection Funds, while Rule No. VI.A.5 stipulates a license for and governance of
Investor Protection Fund Operators.

On November 19, 2014, OJK issued 17 regulations, known as the November Package, relating to financial
institutions aimed at better supervising in financial sector services, deepening financial markets and widening
public financial access. The November Package regulations encompass:
(i) six regulations in the banking sector:
(1) OJK Regulation No.16/POJK.03/2014 on Asset Quality Sharia Bank and Sharia Business Unit
will come into force on January 1, 2015. This regulation revoked BI Regulation
No.13/13/PBI/2011 on Valuation of Asset Quality of Sharia Bank and Sharia Business Unit and
BI Regulation No.10/18/PBI/2008 as amended by BI Regulation No.13/9/PBI/2011 save for
provisions relating to Sharia rural banks;
(2) OJK Regulation No.17/POJK.03/2014 on the Implementation of Integrated Risk Management of
Financial Conglomerations;
(3) OJK Regulation No.18/POJK.03/2014 on the Implementation of Integrated Governance on
Financial Conglomerations;
(4) OJK Regulation No.19/POJK.03/2014 on Branchless Banking in relation to Inclusive Finance;

161
 (5) OJK Regulation No.20/POJK.03/2014 on Rural Banks (Bank Perkreditan Rakyat) that will come
into force on January 1, 2015. This regulation revoked BI Regulation No. 8/26/PBI/2006 on Rural
Banks;
(6) OJK Regulation No.21/POJK.03/2014 on the Minimum Capital Requirement of Sharia Banks that
will come into force on January 1, 2015. This regulation revoked BI Regulation No.7/13/PBI/2005
as amended by BI Regulation No.8/7/PBI/2006 on the Minimum Capital Requirement of Banks
with Sharia Principles;
(ii) seven regulations in the capital market sector:
(1) OJK Regulation No.15/POJK.03/2014 on Monthly Report of Collective Investment Contract of
Asset Backed Securities (Kontrak Investasi Kolektif Efek Beragun Aset or KIK EBA);
(2) OJK Regulation No.22/POJK.03/2014 on Know Your Customer Principles for Financial Service
Providers in the Capital Market sector. This regulation revoked the Head of Bapepam-LK Decree
No. Kep-476/BL/2009 and Regulation V.D.10 on Know Your Customer Principles for Financial
Service Providers in the Capital Market Sector;
(3) OJK Regulation No.23/POJK.03/2014 on Guidelines for Issuance and Reports on Asset Backed
Securities in the form of Participating Notes (Efek Beragun Aset Surat Partisipasi) in relation
to the Secondary Mortgage Facilities;
(4) OJK Regulation No.24/POJK.03/2014 on Guidelines on Implementation of Functions of
Investment Manager. This regulation revoked the Head of Bapepam-LK Decree No.
Kep-480/BL/2009 and Regulation V.D.11 on Guidelines on Implementing Functions of
Investment Manager;
(5) OJK Regulation No.25/POJK.03/2014 on License of Representative of Investment Manager. This
regulation revoked the Head of Bapepam-LK Decree No. Kep-547/BL/2010 and Regulation V.B.1
on License of Representative of Securities Company;
(6) OJK Regulation No.26/POJK.03/2014 on Guarantee on Settlement of Stock Exchange
Transaction. This regulation revoked the Head of Bapepam-LK Decree No. Kep-46/PM/2004 on
Guarantee on Settlement of Stock Exchange Transaction and Head of Bapepam-LK Decree No.
Kep-47/PM/2004 and Regulation III.B.7 on Guarantee Fund;
(7) OJK Regulation No.27/POJK.03/2014 on License of Representative of Underwriter (Penjamin
Emisi Efek) and Broker (Perantara Pedagang Efek). This regulation revoked the Head of
Bapepam-LK Decree No. Kep-547/BL/2010 and Regulation V.B.1 on License of Representative
of Securities Company; and
(iii) four regulations on the Non-Banking Financial Industry (Industri Keuangan Non-Bank or IKNB):
(1) OJK Regulation No.28/POJK.03/2014 on Business Licenses and Institutions of Financing
Companies;
(2) OJK Regulation No.29/POJK.03/2014 on Business Activities of Financing Companies;
(3) OJK Regulation No.30/POJK.03/2014 on Good Corporate Governance of Financing Companies;
and
(4) OJK Regulation No.31/POJK.03/2014 on Business Activities of Sharia Financing Companies.

Monetary Policy
Monetary Policy
The Republic adopted three elements of monetary policy following the Asian financial crisis in 1997. First,
inflation targeting was adopted as the anchor of monetary policy. Second, a floating exchange rate system was
introduced. The Republic may intervene in the foreign exchange market; the objective of its intervention is not to
achieve a particular exchange rate level but to avoid excessive volatility. Third, the banking restructuring process
was given higher priority. The above three policy measures have resulted in lower interest rates, which in turn
have helped ease the debt burden of both the public and corporate sectors.

The Government began to issue bonds in the domestic market in 1998. Bank Indonesia issues SBI in open
market operations to adjust the countrys money supply. SBI are issued in one-month and three-month maturities,

162
and SBI discount rates are determined by the market through a biweekly auction of SBI, which Bank Indonesia
influences by controlling the supply of SBI made available in these biweekly auctions. SBI rates are used as
references by Bank Indonesia in determining its policy interest rate and the financial sector uses SBI rates as
references to determine deposit and loan rates. The first SBI were issued in 1984. SBI, which are issued by Bank
Indonesia in its role as formulator and implementer of the Republics monetary policy, are not considered
liabilities of the Republic. Accordingly, SBI are not reflected in the government debt discussions in this Offering
Circular. See Financial System Bank Indonesia.

In 1998, during the hyperinflationary period of the Asian financial crisis, the Government implemented
strict control measures over base money supply and net domestic assets. As a result of the tight monetary stance
initiated in 1998, interest rates rose sharply. Inflation has moderated since 1998, mainly as a result of a more
stable exchange rate and a better controlled base money supply. Inflation as measured by changes in the CPI
dropped from 77.6% in 1998 to 2.0% in 1999, then climbed back up to 9.4% in 2000 and 12.6% in 2001, before
declining to 10.0% in 2002 and 5.1% in 2003. In 2004, the CPI rose materially to a level of 6.4% and in 2005 to
17.1% due to the increase in domestic fuel prices by the Government.

Lower inflation and exchange rate stability enabled Bank Indonesia to bring one-month SBI interest rates
(on an annualized basis) down from a peak of around 70.7% in August 1998 to 38.4% by December 1998 and
12.5% by December 1999. Bank Indonesia allowed SBI rates to increase again to 14.5% by December 2000 and
17.6% by December 2001. These higher rates were aimed at absorbing excess liquidity in the economy in line
with achieving Bank Indonesias base money supply target and controlling inflation. Bank Indonesia then
brought SBI rates down to 12.9% by December 2002 and into single digits at 8.3% by December 2003. By
December 2004, SBI rates declined to 7.4%.

In July 2005, Bank Indonesia enhanced its monetary policy framework by incorporating a new inflation
targeting framework. This enhanced monetary policy framework has four fundamental elements: the use of the
BI Rate as an operational target; a forward looking monetary policy decision process; a more transparent
communication strategy; and enhanced policy coordination with the Government. These efforts are aimed at
enhancing the effectiveness of the monetary policy and achieving price stability.

During 2005, as higher inflationary pressures threatened macroeconomic stability, Bank Indonesia tightened
its monetary policy and increased the SBI rate to curb inflationary pressure. In line with this policy and the
implementation of the new monetary policy framework, Bank Indonesia raised the BI Rate six times from July to
December 2005, from 8.5% to 12.75%. The decision to raise rates was based primarily on increasing global oil
prices and the rise in the U.S. federal funds rate, as well as the weakening value of the Rupiah.

From January 2006 until April 2006, Bank Indonesias monetary policy continued aiming at reducing the
high inflation caused principally by increased fuel prices in 2005, when inflation was 17.1%, to the targeted
range for 2006 of 7.0% to 9.0%. By the end of April 2006, stable macroeconomic conditions were restored, the
Rupiah had appreciated and the rate of inflation had declined. As a result, on May 9, 2006, Bank Indonesia
decided to ease its monetary policy and reduced the BI Rate from 12.75% to 12.5%. Through the remainder of
2006 and into 2007, Bank Indonesia continued to ease its monetary policy and gradually reduced the BI Rate
from 12.5% on May 9, 2006 to 12.25% on July 6, 2006, to 11.75% on August 8, 2006, to 11.25% on
September 5, 2006, to 10.75% on October 5, 2006, to 10.25% on November 7, 2006, to 9.75% on December 7,
2006, to 9.5% on January 4, 2007, to 9.25% on February 6, 2007, to 9.0% on March 6, 2007, to 8.75% on May 8,
2007, to 8.5% on June 7, 2007, to 8.25% on July 5, 2007 and to 8.0% on December 6, 2007. Inflation in 2006
was 6.6%, under the targeted range, while inflation in 2007 was 6.6%, within the targeted range of 5.0% to 7.0%.

Inflationary pressures in Indonesia have increased since the beginning of 2008, primarily due to the
increasing global oil, food and other commodity prices. In 2008, the Indonesian CPI increased by 11.1%, then
decreased by 7.9%, calculated on a year-on-year basis, as of March 31, 2009. See Economy and Gross
Domestic Product Inflation. In response to projected inflationary pressures, Bank Indonesia increased the BI
Rate gradually from 8.0% in early 2008 to 9.5% in October 2008. These increases were followed by
commensurate increases in lending rates. Having declined in 2007 and the beginning of 2008, working capital
and investment credit rates began to rise gradually from 12.9% and 12.4%, respectively, in May 2008 to 14.7%
and 13.9%, respectively, in October 2008. The BI Rate was subsequently revised downward to 9.25% on
December 4, 2008, to 8.75% on January 7, 2009, to 8.25% on February 4, 2009, to 7.75% on March 4, 2009, to
7.5% on April 3, 2009, to 7.25% on May 5, 2009, to 7.0% on June 3, 2009, to 6.75% on July 3, 2009 and to 6.5%
on August 5, 2009. These decisions were made following the easing of inflationary pressures. Bank Indonesia
has also required greater disclosure for large purchases of foreign currency to reduce speculative pressure on the

163
Rupiah. The BI Rate was maintained at 6.5% until February 4, 2011, when Bank Indonesia increased the BI Rate
by 25 basis points to 6.75%. Subsequently, Bank Indonesia lowered the BI Rate by 25 basis points back to 6.5%
on October 11, 2011 and by another 50 basis points to 6.0% on November 10, 2011. Bank Indonesia lowered the
BI Rate by 25 basis points to 5.75% in February 2012 and this remained unchanged for the rest of 2012. Bank
Indonesia increased the BI Rate by 25 basis points to 6.0% on June 13, 2013, by 50 basis points to 6.5% on
July 11, 2013, by another 50 basis points to 7.0% on August 29, 2013, by 25 basis points to 7.25% on
September 12, 2013 and by 50 basis points to 7.5% on November 12, 2013. As of November 12, 2014, the BI
Rate was 7.75%. Bank Indonesia has in the past intervened to minimize the effect of exchange rate fluctuations
on inflation, and is expected to continue to intervene in the foreign exchange markets, as required, to absorb
excess liquidity and contain excessive exchange rate fluctuations.

Bank Indonesia has also taken measures to improve the operational aspects of its monetary policy in line
with an interest rate-based monetary policy operational framework. On June 9, 2008, Bank Indonesia set a policy
of targetting changes in the overnight interbank interest rate as opposed to the SBI interest rate. Prior to this,
Bank Indonesia targeted changes in the SBI interest rate, rather than base money, through the BI Rate. The policy
aims to provide clearer information to the financial system regarding the goals of and changes in Bank
Indonesias monetary policy. In addition, on September 16, 2008, to increase liquidity in the domestic banking
system, Bank Indonesia lowered its overnight repurchase, or repo, rate from the BI Rate plus 300 bps to BI Rate
plus 100 bps and adjusted the Bank Indonesia liquidity facility rate or FASBI rate from BI Rate minus 200 bps to
BI Rate minus 100 bps on September 16, 2008. This action was taken to provide sufficient liquidity in the
banking system. The increased market volatility that followed the bankruptcy filing of Lehman Brothers
Holdings Inc. in the United States on September 15, 2008 and the U.S.$85 billion loan extended by the Federal
Reserve Bank to insurer American International Group on September 16, 2008 has thus far had limited impact on
the Indonesian financial market. Bank Indonesia took action to stabilize the exchange rate in order to mitigate
excessive volatility in the foreign exchange market and closely coordinated its actions with the Government.
Bank Indonesia plans to continually evaluate monetary policy in response to domestic, regional and global
market conditions, with the aim of maintaining economic and financial system stability and supporting the
Governments medium term inflation target.

Other policy measures taken by Bank Indonesia to ensure financial system stability include regulations that
permit banks to transfer government and other long-term domestic debt securities from the tradable and
available-for-sale category to the hold-until-maturity category pending the effective date of financial accounting
standard No. 55 on January 1, 2010. In addition, the foreign exchange swap tenor has been extended from seven
days to one month, while Bank Indonesia: (i) increased the availability of foreign currency for domestic
companies through the banking system; (ii) lowered the foreign exchange reserve requirement from 3.0% to
1.0%; (iii) removed the limit on the daily balance of a banks short term external debt and the daily limit on net
short-term foreign borrowings by lifting the restriction on the daily position of a banks short-term foreign
borrowings; and (iv) simplified the Rupiah statutory reserve requirement to 7.5% of depositor funds, consisting
of a primary reserve requirement of 5.0% and a secondary reserve requirement of 2.5%, the latter of which
became applicable as of October 24, 2009.

In order to maintain equilibrium between demand and supply in the foreign exchange market, decrease the
pressure on the Rupiah, and minimize domestic speculative purchases of foreign currency, Bank Indonesia issued
new regulations that govern foreign currency purchases. Foreign currency transactions above U.S.$100,000 per
month must be accompanied by evidence of an underlying transaction. This is applicable only to spot
transactions in the case of non-residents. Further, Bank Indonesia continues to support the availability of foreign
exchange supply in the market. The latest measure undertaken by Bank Indonesia was the repurchase of export
drafts from exporters and facilitating the Republics plans for the international issuance of bonds.

In 2010, the increase in inflationary pressures was mostly driven by higher food prices predominantly driven
by weather anomalies. CPI increased by 7.0%, slightly above the target of 5.0%, plus or minus 1.0%, while
inflation for the volatile foods group reached 15.6%. Notwithstanding strong domestic demand, core inflation
remained at 4.3%. Meanwhile, administered price inflation was moderate at 5.4%. The Rupiah exchange rate
strengthened with a lower volatility, induced by strong capital inflows corresponding to strong economic
fundamentals, attractiveness of yields, and mounting positive perceptions of economic prospects, global excess
liquidity due to advanced countries accommodative monetary policy and uncertain economic prospects. With
robust export performance and strong capital inflows, balance of payments recorded a sizable surplus of
U.S.$30.3 billion in 2010.

To safeguard the macroeconomic stability while fostering sustained robust economic growth, Bank
Indonesia continues to adopt prudent and consistent monetary policies. Nonetheless, implementation of these

164
policies remains challenging. The unfolding global environment continues to be uncertain, thereby increasing the
complexity of Bank Indonesias policy responses. Global economic recovery still exhibits imbalances between
advanced and emerging countries, while capital inflows to emerging markets including Indonesia continue to be
strong. On the domestic front, the strong demand requires a corresponding response from the supply side so as to
not cause pressures on both price and external stability.

Bank Indonesia faces challenges in formulating an appropriate policy mix to better manage the domestic
excess liquidity in the financial sector amid the surging capital inflows and limited absorption in the economy. In
response to these challenges and considering that inflation pressure in 2010 mainly stemmed from
non-fundamental factors, the BI Rate throughout 2010 was unchanged at 6.5%. To further strengthen the
monetary and financial system stability, Bank Indonesia adopted a policy mix to better manage the domestic
liquidity and respond to strong capital inflows. This monetary and macro-prudential policy mix encompassed
four key measures, namely: (i) the BI Rate remaining at 6.50% level; (ii) smoothing foreign exchange volatility
in order to avoid excessive volatility of the Rupiah exchange rate; (iii) better liquidity management strategy by
strengthening monetary operations; and (iv) adopting a number of macro-prudential policy tools, both for
managing the domestic liquidity such as through increasing reserve requirement, and for mitigating the risk of
sudden short term capital reversal such as through One Month Holding Period for SBI. Some of these policy
measures are part of the policy package that was announced on June 16, 2010. See Financial
System Strengthening the Banking System.

Bank Indonesia decided to further adopt a set of new monetary policy measures in December 2010. See
Financial System Strengthening the Banking System. These new policies aim to further strengthen the
monetary and macro-prudential policies that have been implemented, while at the same time aim to normalize the
policies that were adopted during the 2008 crisis. The new policies include reinstating the limit on the daily
balance of a banks short term external debt to a maximum of 30.0% of the banks capital, and revocation of
Bank Indonesias direct supply of foreign exchange to domestic corporations. Bank Indonesia also strengthened
monetary and financial system stability through the implementation of macro-prudential surveillance. The new
policies include: improving the regulation and use of information on a banks business plan, raising the reserve
requirement ratio for foreign currency deposits from 1.0% to 5.0% on March 1, 2011 and from 5.0% to 8.0% on
June 1, 2011 and normalizing the regulation on Bank Indonesias short-term funding facilities to commercial
banks.

At the beginning of 2011, inflation expectations began to climb. The surge in inflation expectations was
triggered by steep increases in food prices and was also prompted by rising global commodity prices and the
Governments plan to reduce the fuel subsidy. Believing that the rising inflation expectations called for an
appropriate response to avert future inflationary pressures, Bank Indonesia decided to increase the BI Rate by
0.25% to 6.75% on February 4, 2011. Before February 2011, Bank Indonesia had maintained a BI Rate of 6.50%
since August 5, 2009 when the BI Rate was reduced from 6.75% to 6.50%. The decision to increase the BI Rate
represents an anticipatory measure to curb the renewed surge in expectations of future inflation.

Entering the second quarter of 2011, inflationary pressures gradually declined in line with the correction in
food prices, as well as with the appreciation of the Rupiah. The Governments decision to postpone its plan to
reduce the fuel subsidy also contributed to the decline in inflationary pressures. Bank Indonesia monitored the
number of risks that may put pressure on overall macroeconomic and financial stability, particularly with
continuing large capital inflows, acceleration in domestic demand, and global commodity price increases.
Through September 2011, Bank Indonesia kept the BI Rate unchanged at 6.75%. The decision took into account
the importance of maintaining macroeconomic stability amid heightened uncertainty in the global financial
system triggered by the U.S. and Euro area debt concerns. On October 11, 2011, Bank Indonesia lowered the BI
Rate by 25 basis points back to 6.50%. This decision was made in accordance with Bank Indonesias belief that
inflation at the end of 2011 and in 2012 will fall below 5.0%. On November 10, 2011, Bank Indonesia lowered
the BI Rate by another 50 basis points to 6.00%. The decision to further lower the BI Rate was taken in line with
the decreasing trend in inflation pressures and also as part of Bank Indonesias efforts to narrow the interest rate
term structure. Both of the latest reductions to the BI Rate were also intended to mitigate the impacts of global
economic developments on Indonesias economic performance. Although the impact of the uncertainty in the
global economy on Indonesias domestic economy has so far been limited, Bank Indonesia continues to monitor
the situation and assess its impact on Indonesian economic performance. Against this backdrop, Bank Indonesia
was able to adjust the interest rate along with a mix of other monetary policies to mitigate the potential slowdown
in domestic economic performance and to keep inflation at 3.8% in 2011, which is below its budgeted target of
5.0% plus or minus 1.0%. Similarly, in 2012, inflation rose to 4%, and remained below Bank Indonesias target
of 4.5%, plus or minus 1.0%.

165
 In January 2012, Bank Indonesia decided to keep the BI rate unchanged at 6.0%. The Board of Governors
was of the view that the level of BI rate was still consistent with inflation targets, financial system stability, and
remained conducive to propel domestic economic expansion amidst global economic uncertainty. In February
2012, Bank Indonesia decided to lower the BI rate by 25 basis points to 5.75%. This decision was made as a
further step to boost Indonesias economic growth amidst decreasing performance of the global economy, while
keeping the priority on achieving inflation target and exchange rate stability. Under this decision, the lower and
upper bounds of interest rate corridor of Bank Indonesias monetary operation turned to 3.75% for overnight
deposit facilities (deposit facility rate) and 6.75% for overnight lending facilities (lending facility rate). In March
2012, Bank Indonesia mandated loan-to-value levels for mortgages and down payments on motor vehicle loans
in order to enhance bank prudence and to bolster financial sector resilience. The legislation is stated in Bank
Indonesia Circular No. 14/10/DPNP, dated March 15, 2012, concerning the Application of Risk Management by
Banks that offer Mortgages and Motor Vehicle Loans. A reduced payment level was set for commercial vehicles
from that of personal vehicles. This regulation is further amended by the issuance of Bank Indonesia Circular
No. 15/40/DKMP on September 24, 2013. See Financial System Bank Indonesia Monetary Policy. The BI
rate level remained unchanged at 5.75% as of September 30, 2012. In anticipation of a potential deterioration in
the ongoing European crisis, Bank Indonesia continued to monitor and prepare necessary anticipatory measures.
In addition to market intervention, Bank Indonesia also enhanced existing Rupiah stabilization measures,
including purchases of SBN in the secondary market, the introduction of foreign currency term deposits and the
development of other domestic foreign exchange instruments.

In June 2012, the Government, Bank Indonesia and the IDIC signed a new memorandum of understanding
on mutual coordination for crisis anticipation aimed at safeguarding the financial systems stability. Experience
from prior crises both in Indonesia as well as in other countries has demonstrated that inefficient crisis resolution
has caused extremely high economic and social costs and required considerable recovery time. Experience has
also shown that the Indonesian economy cannot be insulated from the global crises risks. While various policies
have been taken in order to strengthen domestic economy resilience, increasing economic and global financial
uncertainty has created vulnerabilities, such as large capital reversals that have occurred since the second half of
2011. It is difficult to foresee or anticipate the risks associated with the economic uncertainty and vulnerability.
Therefore, steps have been taken to increase the awareness of these risks by identifying sources of vulnerability
and establishing a mechanism of crisis prevention and resolution. Under the new memorandum of understanding,
the Financial System Stability Coordination Forum will monitor not only the banking sector but also the financial
market, capital market and non-banking financial institutions. Bank Indonesia will focus on preventing and
handling exchange rate and banking crises, while the Government will focus on regulating financial markets,
capital markets and non-banking financial institutions. The Crisis Management Protocol was created to ensure
effective decision making and proper legal bases for crisis prevention and management actions and policies.

Entering the second half of 2012, the economy faced an increasing risk of external imbalances marked by
the widening of the current account deficit. Meanwhile, financing for the deficit is constrained by limited capital
inflows following negative perception on Rupiah assets. In response to these developments, Bank Indonesia took
the tactical move of narrowing the interest rate corridor for monetary operations by 25 bps to 4.0% in August
2012, followed by strengthening the short-term monetary instrument interest rate structure which also
complements the exchange rate policy. The strategy to strengthen the structure of short-term interest rates was
aimed at influencing the money market interest rates structure and the bond market as a whole in order to
increase the competitiveness of Rupiah assets. This move aims to increase the supply of foreign exchange in the
domestic financial market. The policy to increase the overall interest rate structure was quite effective as
indicated by the depletion of the yield spread between the long-term and the short-term tenor of government
securities. After the policy was implemented, foreign capital flowed back into Rupiah assets. The inflow was also
supported by the improvement of financial market risk perception due to accommodative monetary policies taken
by advanced countries, especially the QE3 program by the U.S. Federal Reserve.

Overall, the interest rate measures taken by the Bank of Indonesia were effective to maintain the momentum
of economic growth. During 2012, Indonesia was still able to grow above 6.0%, making Indonesia one of the few
countries in the region which was still able to achieve growth through the global economic slowdown.

In the second and third quarters of 2013, in line with the protracted global economic slowdown, the
Republics economy showed signs of a continued slowdown. The Government and Bank Indonesia have
implemented various policies to address these economic pressures. The policies aimed to maintain economic
stability and ensure the process for short term adjustments remains in place. In particular, the policies aimed to
ensure that inflation will remain at a stable level, the exchange rate will be kept at projected levels and current
account deficits will be reduced to a more robust level.

166
 CPI increased significantly in June 2013 by approximately 5.9% (year-on-year). CPI also increased
significantly in July 2013 by approximately 8.6% (year-on-year). These increases were primarily due to
significant inflation in administered prices and volatile food inflation. The rise in CPI was in line with Bank
Indonesia forecasts, as it was primarily a result of increases in fuel prices caused by the planned reduction of
government fuel subsidies on a per liter basis that became effective in late June 2013. In July 2013, Bank
Indonesia increased the BI Rate by 50 basis points to 6.5%, having previously increasing the BI rate by 25 basis
points in June 2013.

Inflationary pressures eased in August and September 2013 following a spike in the preceding months. CPI
decreased in August by 1.1% (month-to-month) or 8.8% (year-on-year). In September 2013, inflation decreased
by 0.4% (month-to-month) or 8.4% (year-on-year). This decrease is in line with Bank Indonesias projections
that inflationary pressures would ease from September 2013 onwards and is a result of the steps taken by Bank
Indonesia and the Government to coordinate anti-inflationary measures and lower domestic demand.

In the final quarter of 2013, CPI was 8.4% (year-on-year), exceeding the target rate of 4.5% +-1, an increase
of 4.1% from the end of 2012 as a result of domestic food price increases in addition to fuel subsidy adjustments
at the end of June 2013. In the first quarter of 2014, CPI was 7.3% (year-on-year), a decrease of 1.1% from the
previous quarter. This decrease was in line with Bank Indonesia forecasts, as it resulted from lower inflationary
pressures on volatile foods and core inflation. Core inflation subsided in line with economic moderation, minimal
external pressures and improved inflation expectations.

Between June 2013 and September 2013, Bank Indonesia raised its benchmark interest rate from 5.75% to
7.25%. The increase in interest rate forms part of the follow-up measures taken by Bank Indonesia to reinforce its
policies to control inflation, stabilize the Rupiah exchange rate and ensure the current account deficit is
maintained at a sustainable level. Measures to stabilize the Rupiah in line with prevailing economic principles
will continue, underpinned by efforts to strengthen monetary operations and expand the foreign exchange market.
Bank Indonesia will also renew its efforts to enhance coordination with the Government and the Coordinating
Forum on Financial System Stability in order to maintain macroeconomic and domestic financial system
stability, particularly to control inflation, stabilize financial markets, reduce the current account deficit and
ensure a robust balance of payments.

In January 2014, Bank Indonesia maintained the BI rate at 7.50%. The Board of Governors decided that the
rate was consistent with inflation targets and efforts to preserve stability of the financial system amidst the
slowdown of the global economy. Between February 2014 and June 2014, CPI gradually decreased along with
the global economic recovery. Bank Indonesia maintained its policy of steering inflation towards its target of
4.51% in 2014 and 4.01% in 2015.

Towards the second half of 2014, the economy faced persistent deceleration of domestic economic growth.
CPI was recorded at 0.47% (month-to-month) or 3.99% (year-on-year) in August 2014, lower than the preceding
month. Bank Indonesia decided to maintain the BI Rate at 7.50% and continuously strengthen its monetary and
macroprudential policy mix to safeguard macroeconomic and financial system stability as well as strengthen the
domestic economic structure.

In November 2014, Bank Indonesia raised its benchmark interest rate from 7.50% to 7.75%, with an
increase of 50 bps on the Lending Facility rate to 8.0% while the Deposit Facility rate remained unchanged at
5.75%. The increase of BI Rate was to anchor inflation expectation and to ensure that inflationary pressures
remained under control and temporary after the subsidized fuel price hike, and that inflation promptly returned
towards its target corridor of 41% in 2015. Bank Indonesia also strengthened its policy mix and tightened
coordination with the Government to maintain macroeconomic and financial stability as well as support
sustainable economic growth.

Looking ahead, Bank Indonesia policy will be directed towards managing domestic demand at a level
commensurate with efforts to maintain external and internal balance. Bank Indonesia will strive to strengthen its
policies, based on the following five pillars: (i) interest rate policy will be managed in a manner consistent with
the inflation forecast to keep inflation on track with the established target; (ii) exchange rate policy will be
directed at curbing movement in the Rupiah in line with the condition of its fundamentals; (iii) macroprudential
policies will be directed towards safeguarding financial system stability and supporting the maintenance of
internal and external balances; (iv) policy communications strategy will be strengthened in order to manage
inflation expectations; and (v) Bank Indonesia and the Government will improve coordination further in support
of macroeconomic management to focus on reinforcing economic structures, expanding sources of economic
financing, and bolstering supply-side response and improvements for a more robust Crisis Management Protocol
(PMK).

167
Money Supply
Bank Indonesia tracks several different measures of money supply. Base money (M0) includes currency
(bank notes and coins in circulation) and demand deposits of commercial banks at Bank Indonesia. Narrow
money (M1) consists of currency plus Rupiah-denominated demand deposits in commercial banks, interbank
transfers for customers which have not cleared through the banking system and matured (but uncollected) time
deposits at commercial banks. Broad money (M2) consists of M1 plus quasi-money, which includes time
deposits and savings deposits in Rupiah and deposits in foreign currencies.

The following table sets forth the money supply for the periods indicated.

Money Supply

Money
Base
money Demand Total Quasi- Total
End of period (M0)(1) Currency deposits (M1) money (M2)
(in billions of rupiah)
2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 344,688 209,747 247,040 456,787 1,435,772 1,895,839
2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 402,118 226,006 289,818 515,824 1,622,055 2,141,384
2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 518,447 260,227 345,184 605,411 1,856,720 2,471,206
2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 613,488 307,760 415,231 722,991 2,139,840 2,877,220
2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 704,843 361,897 479,755 841,652 2,455,435 3,307,508
2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 821,679 399,606 487,475 887,081 2,820,311 3,730,197
As of March 31, 2014 . . . . . . . . . . . . . . . . . . . 771,365 377,433 476,065 853,497 2,784,873 3,660,298
As of June 30, 2014 . . . . . . . . . . . . . . . . . . . . . 794,794 381,644 564,080 945,724 2,903,277 3,865,758
As of September 30, 2014 . . . . . . . . . . . . . . . . 817,230 395,234 553,939 949,173 3,044,547 4,009,857
As of October 31, 2014 . . . . . . . . . . . . . . . . . . 849,940 396,114 544,236 940,349 3,066,084 4,024,153
Source: Bank Indonesia
(1) Base Money (M0) in year 2009 and 2010 is subject to reserve requirements changes.

Factors affecting money supply

Other
Foreign Claims on central Claims on items
End of period assets (net) Government (net)(1) business sectors (net)(2)
(in billions of rupiah)
2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 602,347 379,217 1,348,827 (446,540)
2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 695,686 405,398 1,495,788 (465,195)
2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 879,426 351,888 1,832,391 (532,046)
2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 912,174 351,177 2,118,376 (29,895)
2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 965,442 389,827 2,581,327 17,778
2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,011,361 406,615 3,098,225 33,977
As of March 31, 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . 987,705 308,632 3,113,021 34,997
As of June 30, 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,077,147 325,321 3,259,185 27,471
As of September 30, 2014 . . . . . . . . . . . . . . . . . . . . . . 1,114,215 345,783 3,349,075 42,762
As of October . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,096,264 380,037 3,386,976 26,157
Source: Bank Indonesia
(1) Claims on the Government are Rupiah-denominated claims which are included net of the Governments deposits with the banking
system.
(2) Includes capital accounts, SDR allocations and inter-system accounts.

In 2009, liquidity contracted, led by M1. The 2009 year-on-year growth in M1 and M2 was 12.9% and
13.0%, respectively. The slowing expansion amid conditions of persistently low inflation, reflected a lack of
stability and strength in public purchasing power. The extent of liquidity not used by the public in economic
activity is also reflected in M1 growth, which remained below the historical average growth.

In 2010, increasing economic activities pushed the growth of currency and base money. M1 increased by
17.4% to Rp605 trillion while M2 also increased by 15.4% to Rp2,471 trillion. M1 real growth has not changed
significantly, however, compared to 2009. On the other hand, the significant increase in M2 was primarily due to
quasi-money which was increasing in line with the strong capital inflows. Meanwhile, the base money increased
by 28.9% to Rp518 trillion. Increases in base money growth was affected by the implementation of the higher

168
reserve requirement policy in November 2010. This policy set the primary statutory reserve requirement for
Rupiah funds at 8.0%, the secondary statutory reserve requirement for Rupiah funds at 2.5% and an LDR reserve
at an amount to be calculated in accordance with the applicable BI requirements in force at such time.

In 2011, base money supply increased to Rp613.5 trillion. In the same period, M1 increased by 19.4% to
Rp723 trillion primarily due to a significant expansion in government accounts that increased demand for Rupiah
deposits. Meanwhile, M2 increased 16.4% to Rp2,877.2 trillion, primarily due to an increased contribution from
saving and demand deposits amid minimum contribution from net foreign assets because of uncertainty in the
global economy.

In 2012, economic liquidity demonstrated an upward trend in line with the continued strength of household
consumption and brisk pace of credit expansion. Base money increased to Rp704.8 trillion, or 14.9% from 2011.
M1 increased by 16.4% from 2011 to Rp841.7 trillion and M2 increased by 15.0% from 2011 to Rp3,307.5
trillion. Growth in M1 was mainly driven by increasing demand in Rupiah deposits in line with growth in
lending. Growth in M2 was due to an increase in Rupiah time deposits and saving deposits.

In 2013, economic liquidity increased to Rp3,730.2 trillion. This was consistent with the pace of the
domestic economy, resulting in slower expansion in economic liquidity. M1 growth slowed to 5.4% (year-on-
year) from the 2012 level of 16.4% (year-on-year) primarily due to a decline in Rupiah demand deposits and the
downturn of currency outside commercial and rural banks. In addition, M2 growth slowed to 12.7% (year-on-
year) from the 2012 level of 15.0% (year-on-year), primarily due to lower net domestic assets in the midst of
minimum net foreign assets.

In 2014, economic liquidity grew to Rp3,865.7 trillion in the second quarter of 2014 following its slowing
trend during the first quarter of 2014. The slowing trend in the first quarter of 2014 resulted from slower growth
in M2 in keeping with the slowing activity in the domestic economy and more moderate credit growth.
Meanwhile, the growing trend during the second quarter of 2014 was primarily due to growth in Net Foreign
Assets, corresponding to capital inflow as reflected in rising foreign exchange reserves. M1 growth increased to
10.7% (year-on-year) in the second quarter of 2014 from 5.4% (year-on-year) in the previous quarter was
primarily driven by currency outside commercial and rural bank growth. In the third quarter of 2014, economic
liquidity increased to Rp4,009.9 trillion, primarily due to a significant increase in quasi-money.

Indonesia Stock Exchange

The domestic stock market registered a decline in 2013, despite showing some signs of strengthening within
the first half of 2013. In the first half of 2013, the Jakarta Composite Index (JCI) performance continued to
strengthen, influenced by positive sentiment from China and the U.S. However, external and domestic risk
factors intensified leading to a correction for the JCI in the second half of 2013. On the domestic side, negative
sentiment originated from fears of rising inflationary pressures, a depreciating exchange rate and widening
current account deficit. From a global perspective, the negative sentiment resulted from the U.S. Federal
Reserves tapering of its monetary stimulus. As at December 31, 2013, the JCI reached a level of 4,274.2, down
11.3% compared to the first half of 2013 which had a value of 4,818.9, or down 1.0% compared to 2012 which
had a value of 4,316.7.

Exchange Rates
The Rupiah exchange rate strengthened slightly at the beginning of 2014 before gradually weakening
thereafter. The Rupiah has depreciated significantly since September 2014, partially as a result of the planned
cutback in the Federal Reserves monetary stimulus. The negative perceptions of investors of the current account
deficit at the beginning of 2014 contributed to the weaker Rupiah, however, the current account deficit has been
narrowing throughout 2014.

In 2014, the Rupiah had an average exchange rate of Rp11,878 to the U.S. dollar, having depreciated by
13.7% compared to the average in 2013, during which the exchange rate was Rp10,445 to the U.S. dollar.

Government Budget
Fiscal Policy
Since 2001, the focus of the Governments fiscal policy has been to promote fiscal consolidation and reduce
government debt gradually in order to achieve fiscal sustainability. As a result of the overall macroeconomic

169
situation and current policy challenges, since 2006, the Government has also focused fiscal policy on providing a
modest degree of stimulus to the overall economy, within the constraints of the Governments overall fiscal
situation.

In August 2009, President Yudhoyono submitted the 2010 Budget to the DPR, which, with certain
modifications, was enacted in November 2009. The Government set the 2010 Budget as a baseline budget for the
new government formed after the 2009 general election held in July 2009. The new government proposed the
Revised 2010 Budget to the DPR and submitted it in March 2010. The Revised 2010 Budget was prepared by the
new government to accommodate the KIB II Priority Programs and to adjust to the changes in macroeconomic
indicators since the original 2010 Budget assumptions. The DPR approved the revised budget on May 25, 2010.

Certain expenditure in the Revised 2010 Budget was aimed at: (i) continuing or improving all people
prosperity programs and other subsidies; (ii) continuing infrastructure, agriculture and energy development;
(iii) promoting industrial and business recovery through the provision of tax and import duty incentives;
(iv) reforming the bureaucracy with a view to eradicating corruption; (v) increasing operational, maintenance and
weaponry procurement; (vi) funding education; and (vii) developing natural resources coupled with climate
change management and disaster risk mitigation.

In August 2010, President Yudhoyono submitted the 2011 Budget to the DPR, which, with certain
modifications, was enacted in November 2010. The Governments main focuses for 2011 were increasing
welfare; development of democracy and law enforcement.

Certain expenditure in the 2011 Budget was aimed at: (i) accelerating economic growth; (ii) creating and
increasing employment by giving tax incentives to encourage investment and exports to increase the capital
expenditure to build infrastructure; (iii) improving the welfare of its people through social security nets for the
poor with sustainable welfare programs and a more targeted subsidy allocation; and (iv) improving the quality of
environment management. While endeavoring to achieve these goals, the Government maintained a prudent
fiscal policy, encouraged private sector participation in infrastructure development and adopted a series of
foreign investment, financial sector and banking sector reforms. See Monetary Policy and Infrastructure
Development.

In July 2011, the 2011 Budget was revised (the Revised 2011 Budget) to include a target fiscal deficit of
2.1% of the projected GDP, which was higher than the target fiscal deficit of 1.8% of GDP in the 2011 Budget
and the actual deficit of 0.7% of GDP in 2010. The target fiscal deficit as a percentage of GDP increased in the
Revised 2011 Budget primarily due to increases in the assumptions related to average ICP and inflation, and a
decrease in the assumption related to oil production. The targeted fiscal deficit of 2.1% of GDP under the
Revised 2011 Budget was higher than or equal to the actual fiscal deficit, as a percentage of GDP, of 0.1% and
1.6% in 2008 and 2009, respectively. Total expenditure under the Revised 2011 Budget was projected to be
Rp1,320.7 trillion compared to Rp1,229.6 trillion in the 2011 Budget and actual total expenditure of
Rp1,042.1 trillion in 2010. The Revised 2011 Budget projected total revenue (including grants) of
Rp1,169.9 trillion, compared to Rp1,104.9 trillion in the 2011 Budget and actual total revenue (including grants)
of Rp995.3 trillion in 2010. The Revised 2011 Budget projected a deficit of Rp150.8 trillion, significantly higher
than the Rp124.7 trillion deficit projected in the 2011 Budget and the actual fiscal deficit of Rp46.8 trillion in
2010.

In 2011, the Indonesian government budget realized a deficit of Rp90.1 trillion or 59.7% of the
Governments targeted fiscal deficit of Rp150.8 trillion in the Revised 2011 Budget. This realized fiscal deficit of
1.1% of GDP in 2011 was lower than the targeted fiscal deficit of 2.1% of GDP under the Revised 2011 Budget.
Total expenditure in 2011 was Rp1,295.0 trillion, slightly lower than the Rp1,320.8 trillion in the Revised 2011
Budget. Total revenue (including grants) was Rp1,210.6 trillion, slightly higher than Rp1,169.9 trillion in the
Revised 2011 Budget and actual total revenue (including grants) of Rp995.3 trillion in 2010. The realized fiscal
deficit of Rp84.4 trillion was significantly lower than the Rp150.8 trillion deficit projected in the Revised 2011
Budget.

The Government financed the projected deficit under the Revised 2011 Budget using domestic and
international sources. See Public Debt. The Government continued to consider further policy measures
intended to raise revenues and lower non-discretionary expenditures. On the revenue side, these may include tax
collection improvement, tax incentives and tax administration reforms. On the expenditure side, these may
include implementing additional energy saving measures at government offices, implementing targeted subsidies
and encouraging the use of Liquefied Petroleum Gas instead of kerosene for household use.

170
 Expenditure allocation in the Revised 2011 Budget focused on the public services, education and economic
functions. Such expenditure was projected to be 84.1% of central government expenditure. The Revised 2011
Budget also aimed to maintain a minimum allocation of 20.0% of central government expenditure for education.

As of December 31, 2011, the realized fiscal deficit of Rp84.4 trillion was 56.0% of the Governments
target of Rp150.8 trillion in the Revised 2011 Budget. The realized fiscal deficit of 1.1% of GDP was lower than
the target fiscal deficit under the Revised 2011 Budget of 2.1% of GDP. The realized fiscal deficit as a
percentage of GDP was 1.1% in 2011, higher than the actual fiscal deficit of 1.6% in 2009 and 0.7% in 2010.
Total expenditures in 2011 were Rp1,295.0 trillion compared to Rp1,320.8 trillion in the Revised 2011 Budget
and actual total expenditures of Rp1,042.1 trillion in 2010. Total revenues (including grants) were
Rp1,210.6 trillion, compared to Rp1,169.9 trillion in the Revised 2011 Budget and actual revenues (including
grants) of Rp995.3 trillion in 2010. The fiscal deficit of Rp84.4 trillion was significantly lower than the
Rp150.8 trillion deficit projected in the Revised 2011 Budget and higher than the actual fiscal deficit of
Rp46.8 trillion in 2010.

The 2012 Budget, approved by the DPR on October 27, 2011, included a target fiscal deficit of 1.5% of the
projected GDP, higher than the fiscal deficit of 1.1% of GDP in 2011 and higher than the actual deficit of 0.7%
of GDP in 2010. Total expenditure under the 2012 Budget was projected to be Rp1,435.4 trillion compared to
Rp1,289.6 trillion in 2011 and actual total expenditure of Rp1,042.1 trillion in 2010. The 2012 Budget projected
total revenue (including grants) of Rp1,311.4 trillion (equivalent to 16.1% of GDP), compared to
Rp1,199.5 trillion (equivalent to 16.2% of GDP) in 2011 and actual total revenue (including grants) of
Rp995.3 trillion in 2010. The 2012 Budget projected a deficit of Rp124.0 trillion, compared to Rp90.1 trillion in
2011, and higher than the actual fiscal deficit of Rp46.8 trillion in 2010. The Government was expected to
finance the projected deficit under the 2012 Budget from both domestic and international sources. Through its
budgeted expenditure in the 2012 Budget, the Government intended to continue the four main targets of its fiscal
policy in the 2011 Budget, including promoting inclusive economic growth (pro growth), creating and expanding
employment (pro job), increasing social welfare through social safety net programs benefiting the poor (pro
poor), and supporting environmental sustainability (pro environment).

On March 31, 2012, the revised 2012 Budget (the Revised 2012 Budget) included a target fiscal deficit of
2.2% of the revised projected GDP compared to 1.5% of the projected GDP in the 2012 Budget and to the
realized fiscal deficit of 1.1% of GDP in 2011. Total expenditure under the Revised 2012 Budget was projected
to be Rp1,548.3 trillion as compared to Rp1,435.4 trillion in the 2012 Budget and Rp1,295.0 trillion in 2011.
Total revenue (including grants) under the Revised 2012 Budget was projected to be Rp1,358.2 trillion
(equivalent to 15.9% of GDP) compared to Rp1,311.4 trillion (equivalent to 16.1% of GDP) in the 2012 Budget
and Rp1,210.6 trillion (equivalent to 16.2% of GDP) in 2011. The Revised 2012 Budget projected a deficit of
Rp190.1 trillion, compared to Rp124.0 trillion in the 2012 Budget and Rp84.4 trillion in 2011.

As of December 31, 2012, the realized total expenditure in 2012 was Rp1,491.4 trillion, as compared to
Rp1,548.3 trillion in the Revised 2012 Budget and Rp1,295.0 trillion in 2011. The realized 2012 total revenue
(including grants) was Rp1,338.1 trillion (equivalent to 16.2% of GDP) compared to Rp1,358.2 trillion
(equivalent to 15.9% of GDP) in the Revised 2012 Budget and Rp1,210.6 trillion (equivalent to 16.3% of GDP)
in 2011. The realized 2012 deficit was Rp153.3 trillion, compared to Rp190.1 trillion in the Revised 2012 Budget
and Rp84.4 trillion in 2011. As a percentage of GDP, the realized fiscal deficit was 1.9% of GDP in 2012,
compared to 2.2% of projected GDP in the Revised 2012 Budget and to the realized fiscal deficit of 1.1% of
GDP in 2011.

The Revised 2013 Budget included a target fiscal deficit of 2.4% of projected GDP compared to 1.7% in the
2013 Budget. The total expenditure under the Revised 2013 Budget was projected to be Rp1,726.2 trillion
compared to Rp1,683.0 trillion in the 2013 Budget. The Revised 2013 Budget projects total revenue (including
grants) of Rp1,502.0 trillion (equivalent to 16.0% of the projected 2013 GDP), compared to Rp1,529.7 trillion
(equivalent to 16.5% of GDP) in the 2013 Budget. The Revised 2013 Budget projected a deficit of Rp224.2
trillion, compared to Rp153.3 trillion in the 2013 Budget. As of December 31, 2013, the realized total
expenditure in 2013 was Rp1,650.5 trillion, as compared to Rp1,726.2 trillion in the Revised 2013 Budget and
Rp1,491.4 trillion in 2012. The realized 2013 total revenue (including grants) was Rp1,438.9 trillion (equivalent
to 15.8% of GDP) compared to Rp1,502.0 trillion (equivalent to 16% of GDP) in the Revised 2013 Budget and
Rp1,338.1 trillion (equivalent to 16.2% of GDP) in 2012. The realized 2013 deficit was Rp211.6 trillion,
compared to Rp224.2 trillion in the Revised 2013 Budget and Rp153.3 trillion in 2012. As a percentage of GDP,
the realized fiscal deficit was 2.3% of GDP in 2013, compared to 2.4% of projected GDP in the Revised 2013
Budget and to the realized fiscal deficit of 1.9% of GDP in 2012.

171
 The Revised 2014 Budget includes a target fiscal deficit of 2.4% of the projected GDP, higher than the
deficit in 2013 of 2.3%. The total expenditure under the Revised 2014 Budget is projected to be Rp1,876.9
trillion compared to Rp1,650.5 trillion in 2013. The Revised 2014 Budget projects total revenue (including
grants) of Rp1,635.4 trillion, compared to Rp1,438.9 trillion in 2013. The Revised 2014 Budget projects a deficit
of Rp241.5 trillion, compared to a realized deficit of Rp211.6 trillion in 2013. The Government is expected to
finance the projected deficit under the Revised 2014 Budget from both domestic and international sources.

As of December 31, 2014, the realized total expenditure was Rp1,764.6 trillion, the realized total revenue
(including grants) was Rp1,537.2 trillion and the realized deficit was Rp227.4 trillion. As a percentage of GDP,
the realized fiscal deficit was 2.3% of GDP in 2014.

The 2015 Budget includes a fiscal deficit target of 2.21% of GDP, lower than its target on the Revised 2014
Budget of 2.40%. For the 2015 Budget, the total expenditure is Rp2,039.5 trillion, total revenue is Rp1,793.6
trillion (including grants) and deficit financing is Rp245.9 trillion.

The Republic transfers a significant proportion of central Government revenue to regional and local
governments. Under Law No. 33 of 2004 on Balance of Fundings between the Central and Regional
Governments, the central Government transfers funds under five schemes: (i) revenue sharing funds which
return a percentage of certain tax and natural resource revenues generated in a particular region to that region and
surrounding regions within the province; (ii) general allocation funds based on net annual central government
revenue and distributed based on regional and local fiscal gaps (the differences between fiscal need and fiscal
capacity); (iii) specific allocation funds for specific project proposals submitted by regional governments such
as programs related to education, health and infrastructure and which, together with revenue sharing funds and
general allocation funds are called balanced funds; (iv) special autonomy funds which support the Aceh,
Papua and West Papua provinces; (v) DIY specific funds which support the Yogyakarta special region; and
(vi) adjustment funds which fund federal government policies and projects throughout the country. In 2008,
2009, 2010, 2011, 2012 and 2013, these fund transfers accounted for 29.7%, 32.9%, 33.1%, 31.8%, 32.2% and
31.3%, respectively, of the central Governments total expenditure. These fund transfers account for 32.0% of
total expenditure in the Revised 2014 Budget.

172
Central Government Finances
The following table sets forth information regarding the revenue and expenditure of the central Government
for the periods indicated.

Central Government Revenue and Expenditure

Year ended
Year ended December 31, December 31,
2009L 2010L 2011L 2012L 2013L 2014R 2014P 2015B
(in trillions of Rupiah)
Revenue and grants:
Domestic revenue:
Tax revenue . . . . . . . . . . . . . . . . . . . . . . . 619.9 723.4 873.9 980.5 1,077.3 1,246.1 1,143.3 1,380.0
Non-tax revenue . . . . . . . . . . . . . . . . . . . . 227.2 268.9 331.5 351.8 354.8 386.9 390.7 410.3
Total domestic revenue . . . . . . . . . . 847.1 992.3 1,205.4 1,332.3 1,432.1 1,633.1 1,534.0 1,790.3
Grants . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.7 3.0 5.2 5.8 6.8 2.3 3.2 3.3
Total revenue and grants . . . . . 848.8 995.3 1,210.6 1,338.1 1,438.9 1,635.4 1,537.2 1,793.6
Expenditure:
Total central government expenditure . . . . . . . 628.8 697.4 883.7 1,010.6 1,137.2 1,280.4 1,190.8 1,392.4
Transfers to regions:
Balanced funds . . . . . . . . . . . . . . . . . . . . . . . . . 287.3 316.7 347.2 411.3 430.4 491.9 477.0 516.4
Special autonomy and adjustment funds . . . . . 21.3 28.0 64.1 69.4 82.9 104.6 96.7 121.6
Total transfers to region . . . . . . . . . . . . . . 308.6 344.7 411.3 480.6 513.3 596.5 573.8 647.0
Suspend(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (0.0) (0.0) (0.2)
Total expenditure . . . . . . . . . . . . . . . . . . . 937.4 1,042.1 1,295.0 1,491.4 1,650.5 1,876.9 1,764.6 2,039.4
Primary balance(2)
....................... 5.2 41.6 8.9 (52.8) (98.6) (106.0) (94.0) (93.9)
Surplus/(deficit) . . . . . . . . . . . . . . . . . . . . . . . . (88.6) (46.8) (84.4) (153.3) (211.6) (241.5) (227.4) (245.9)
Financing:
Domestic financing . . . . . . . . . . . . . . . . . . . . . 128.2 96.1 148.7 198.6 243.2 254.9 261.7 269.7
Foreign financing . . . . . . . . . . . . . . . . . . . . . . . (15.6) (4.5) (17.8) (23.5) (5.8) (13.4) (15.4) (23.8)
Total financing(3) . . . . . . . . . . . . . . . . . . . 112.6 91.6 130.9 175.2 237.4 241.5 246.4 245.9

Source: Ministry of Finance

L LKPP (Central Government Financial Report/Audited).
R Revised 2014 Budget.
B Projected figures based on 2015 Budget.
P Preliminary
(1) Realized expenditure calculated by the Ministry of Finance differed from the figures calculated by line ministries and such discrepancies
have been subtracted and added, respectively, to totals for such years after the fiscal year is over. Suspend is not reported in the current
year.
(2) Primary balance represents revenues minus expenditures excluding interest expenditure.
(3) In 2008, total financing of Rp84.1 trillion exceeded the budget deficit of Rp4.1 trillion. In 2009, total financing of Rp112.6 trillion,
coming mainly from a net government bond issuance of Rp99.4 trillion, exceeded the budget deficit of Rp88.6 trillion and the
Government added the difference of Rp24.0 trillion to its reserves. In 2010, total financing of Rp91.6 trillion, coming mainly from a net
government bond issuance of Rp91.1 trillion, exceeded the budget deficit of Rp46.8 trillion and the Government added the difference of
Rp44.8 trillion to its reserves. In 2011, total financing of Rp130.9 trillion exceeded the budget deficit of Rp84.4 trillion and the
Government added the difference of Rp46.5 trillion to its reserves. In 2012, total financing of Rp175.2 trillion exceeded the budget
deficit of Rp153.3 trillion and the Government added the difference of Rp21.9 trillion to its reserves. In 2013, total financing of Rp237.4
trillion exceeded the budget deficit of Rp211.6 trillion and the Government added the difference of Rp25.8 trillion to its reserves. In
2014, total financing of Rp246.4 trillion exceeded the budget deficit of Rp227.4 trillion and the Government added the difference of
Rp19.0 trillion to its reserves.

173
 Central Government Revenue. The following table sets forth central government revenue by category for the
periods indicated.

Central Government Revenue

Year ended
Year Ended December 31, December 31,
2009L 2010L 2011L 2012L 2013L 2014R 2014P 2015B
(in trillions of Rupiah)
Domestic revenue:
Tax revenue:
Domestic tax:
Income tax:
Oil and gas . . . . . . . . . . . . . . . . . 50.0 58.9 73.1 83.5 88.7 83.9 87.4 88.7
Non-oil and gas . . . . . . . . . . . . . 267.6 298.2 358.0 381.6 417.7 486.0 460.1 555.7
Total income tax . . . . . . . . . . . . . 317.6 357.1 431.1 465.1 506.4 569.9 547.6 644.4
Value added tax (VAT) . . . . . . . 193.1 230.6 277.8 337.6 384.7 475.6 404.7 525.0
Land and building tax . . . . . . . . . 24.3 28.6 29.9 28.9 25.3 21.7 23.4 26.7
Duties on land and building
transfer(1) . . . . . . . . . . . . . . . . . 6.5 8.0
Excises . . . . . . . . . . . . . . . . . . . . 56.7 66.2 77.0 95.0 108.5 117.5 117.9 126.7
Other taxes . . . . . . . . . . . . . . . . . 3.1 4.0 3.9 4.2 4.9 5.2 6.3 5.7
Total domestic taxes . . . . . . 601.3 694.5 819.8 930.9 1,029.9 1,189.8 1,099.9 1,328.5
International trade taxes:
Import duties . . . . . . . . . . . . . . . 18.1 20.0 25.3 28.4 31.6 35.7 32.1 37.2
Export tax . . . . . . . . . . . . . . . . . . 0.6 8.9 28.9 21.2 15.8 20.6 11.3 14.3
Total international trade
taxes . . . . . . . . . . . . . . . . 18.7 28.9 54.1 49.7 47.5 56.3 43.4 51.5
Total tax revenue . . . . . . . . 619.9 723.3 873.9 980.5 1,077.3 1,246.1 1,143.3 1,380.0
Non-tax revenue:
Natural resources:
Oil . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90.1 111.8 141.3 144.7 135.3 154.8 141.1 170.3
Gas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35.7 40.9 52.2 61.1 68.3 56.9 75.8 53.9
Total oil and gas . . . . . . . . . . . . . . . . . 125.8 152.7 193.5 205.8 203.6 211.7 216.9 224.3
General mining . . . . . . . . . . . . . . . . . . . . . . 10.4 12.7 16.4 15.9 18.6 23.6 21.4 24.6
Forestry . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.3 3.0 3.2 3.2 3.1 5.0 3.7 4.6
Fishery . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.1 0.1 0.2 0.2 0.2 0.3 0.3 0.3
Geothermal . . . . . . . . . . . . . . . . . . . . . . . . . 0.4 0.3 0.5 0.7 0.9 0.6 0.8 0.6
Total non-oil and gas . . . . . . . . . . . . . 13.2 16.1 20.3 20.0 22.8 29.4 26.1 30.3
Total natural resources . . . . . . . . 139.0 168.8 213.8 225.8 226.8 241.1 242.9 254.3
Profit transfer from state-owned-enterprises . . . 26.0 30.1 28.2 30.8 34.0 40.0 40.3 44.0
Other non-tax revenue . . . . . . . . . . . . . . . . . . . . 53.8 59.4 69.4 73.5 69.7 85.0 85.4 89.8
Public Service Agency (BLU) Income(2) . . . . . . 8.4 10.6 20.1 21.7 24.6 20.9 22.1 22.2
Total non-tax revenue . . . . . . . . . . . . 227.2 268.9 331.5 351.8 354.8 386.9 390.7 410.3
Total domestic revenue . . . . . . . . . . . 847.1 992.3 1,205.4 1,332.3 1,432.1 1,633.1 1,534.0 1,790.3
Grants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.7 3.0 5.2 5.8 6.8 2.3 3.2 3.3
Total revenue and grants . . . . . . . . . . 848.8 995.3 1,210.6 1,338.1 1,438.9 1,635.4 1,537.2 1,793.6

Source: Ministry of Finance

L LKPP (Central Government Financial Report/Audited).
R Revised Budget.
B Projected figures based on 2015 Budget.
P Preliminary
(1) Starting from January 1, 2011, duties on land and building transfer is no longer budgeted as government revenue from taxation income
and instead is diverted into local tax. This diversion is intended to strengthen local taxing power and to improve regional autonomy
executive accountability.
(2) Includes Governments share of Bank Indonesia profits representing amounts in excess of Bank Indonesias capital ratio requirements,
which excess amounts are transferred to the central Government to be used for repayments of certain central government obligations to
Bank Indonesia.

In 2009, non-oil and gas income taxes, revenue from VAT and non-tax revenue from natural resources
accounted for 70.8% of the total domestic revenue in 2009. These three sources of revenue plus excise taxes and
income tax on oil and gas accounted for 83.4% of total domestic revenue in 2009.

In 2009, realized tax revenue of Rp619.9 trillion was 95.1% of the Governments budget target of
Rp652.0 trillion in the Revised 2009 Budget. Realized domestic tax revenue of Rp601.3 trillion for 2009 was
95.1% of the Governments budget target of Rp631.9 trillion under the Revised 2009 Budget, while international
trade tax revenue of Rp18.7 trillion was 93.5% of the Governments budget target of Rp20.0 trillion under the
Revised 2009 Budget. Realized non-tax revenue in 2009 was Rp227.2 trillion, or 104.2% of the Governments
budgeted amount of Rp218.0 trillion under the Revised 2009 Budget. Total realized revenue and grants of
Rp848.8 trillion for 2009 were 97.5% of the Governments budget target of Rp871.0 trillion under the Revised
2009 Budget.

174
 In 2010, realized tax revenue of Rp723.3 trillion was 97.3% of the Governments target of Rp743.3 trillion
in the Revised 2010 Budget. Realized domestic tax revenue of Rp694.5 trillion for 2010 was 96.4% of the
Governments budget target of Rp720.8 trillion under the Revised 2010 Budget, while international trade tax
revenue of Rp28.9 trillion was 127.9% of the Governments budget target of Rp22.6 trillion under the Revised
2010 Budget. Realized non-tax revenue in 2010 was Rp268.9 trillion, or 108.8% of the Governments budgeted
amount of Rp247.2 trillion under the Revised 2010 Budget. Total realized revenue and grants of Rp995.3 trillion
for 2010 were 100.3% of the Governments budget target of Rp992.4 trillion under the Revised 2010 Budget.

In 2011, realized tax revenue of Rp873.9 trillion was 99.5% of the Governments target of Rp878.7 trillion
in the Revised 2011 Budget. Realized domestic tax revenue of Rp819.8 trillion for 2011 was 98.5% of the
Governments budget target of Rp831.8 trillion under the Revised 2011 Budget, while international trade tax
revenue of Rp54.1 trillion was 115.6% of the Governments budget target of Rp46.9 trillion under the Revised
2011 Budget. Realized non-tax revenue in 2011 was Rp331.5 trillion, or 115.7% of the Governments budgeted
amount of Rp286.5 trillion under the Revised 2011 Budget. Total realized revenue and grants of
Rp1,210.6 trillion in 2011 were 103.5% of the Governments budget target of Rp1,169.9 trillion under the
Revised 2011 Budget.

In 2012, realized tax revenue of Rp980.5 trillion was 96.5% of the Governments target of Rp1,016.2 trillion
in the Revised 2012 Budget. Realized domestic tax revenue of Rp930.9 trillion was 96.1% of the Governments
budget target of Rp968.3 trillion under the Revised 2012 Budget. Realized non-tax revenue was Rp351.8 trillion,
or 103.1% of the Governments budgeted amount of Rp341.1 trillion under the Revised 2012 Budget. Total
realized revenue and grants of Rp1,338.1 trillion were 98.5% of the Governments budget target of
Rp1,358.2 trillion under the Revised 2012 Budget. This was primarily due to a decline in commodity prices
(including mining, mineral, CPO and rubber), which resulted in a decline in non-oil and gas tax revenues.

In 2013, realized tax revenue of Rp1,077.3 trillion was 93.8% of the Governments target of
Rp1,148.4 trillion in the Revised 2013 Budget. Realized domestic tax revenue of Rp1,029.9 trillion was 93.6% of
the Governments budget target of Rp1,099.9 trillion under the Revised 2013 Budget. Realized non-tax revenue
was Rp354.8 trillion, or 101.6% of the Governments budgeted amount of Rp349.2 trillion under the Revised
2013 Budget. Total realized revenue and grants of Rp1,438.9 trillion were 95.8% of the Governments budget
target of Rp1,502.0 trillion under the Revised 2013 Budget. This was primarily due to the slowdown of economic
activities during 2013 from: (i) weakening of global demand that reduced exports; (ii) decreasing of commodity
and energy prices; and (iii) falling of import values, especially on consumption goods. In addition, the shortfall in
tax revenue in 2013 resulted from the implementation of certain tax policies, namely the: (i) adjustment of non-
taxable income that reduced the tax base of personal income tax; (ii) CPO downstream policy that decreased
export duties on CPO products; and (iii) transferring the authority for the collection of property taxes to local
government.

In 2014, realized tax revenue of Rp1,143.3 trillion was 91.7% of the Governments target of Rp1,246.1
trillion in the Revised 2014 Budget. Realized domestic tax revenue of Rp1,099.9 trillion was 92.4% of the
Governments budget target of Rp1,189.8 trillion in the Revised 2014 Budget. Realized non-tax revenue was
Rp390.7 trillion, or 101.0% of the Governments budgeted amount of Rp386.9 trillion in the Revised 2014
Budget. Total realized revenue and grants of Rp1,537.2 trillion were 94% of the Governments budget target of
Rp1,635.4 trillion under the Revised 2014 Budget. This was primarily due to slow growth in the mining and
industrial sectors, decreased imports and the decreased price of CPO in the international market.

Under the 2015 Budget, the Governments target for domestic tax revenue is Rp1,328.5 trillion and the
target for total revenue and grants is Rp1,793.6 trillion.

175
 Central Government Expenditure. The following table sets forth the expenditure of the central Government
for the periods indicated.

Central Government Expenditure

Year ended
Year Ended December 31, December 31,
2009L 2010L 2011L 2012L 2013L 2014R 2014P 2015B
(in trillions of Rupiah)
Central government expenditure:
Personnel expenditure . . . . . . . . . . . . . . . 127.7 148.1 175.7 197.9 221.7 153.2 155.3 293.1
Goods and services expenditure . . . . . . . 80.7 97.6 124.6 140.9 169.7 194.9 163.3 222.5
Capital expenditure . . . . . . . . . . . . . . . . . 75.9 80.3 117.9 145.1 180.9 160.8 145.8 174.7
Interest payments:
Domestic debt . . . . . . . . . . . . . . . . . . . . . 63.7 61.5 66.8 70.2 98.7 120.6 118.8 137.9
Foreign debt . . . . . . . . . . . . . . . . . . . . . . . 30.1 26.9 26.5 30.3 14.3 14.9 14.5 14.0
Total interest payments . . . . . . . . . . 93.8 88.4 93.3 100.5 113.0 135.5 133.4 152.0
Subsidies:
Energy subsidies . . . . . . . . . . . . . . . . . . . 94.6 139.9 255.6 306.5 310.0 350.3 341.8 344.7
Non-energy subsidies . . . . . . . . . . . . . . . 43.5 52.8 39.8 39.9 45.1 52.7 51.0 70.0
Total subsidies . . . . . . . . . . . . . . . . . 138.1 192.7 295.4 346.4 355.0 403.0 392.9 414.7
Grants expenditure . . . . . . . . . . . . . . . . . 0.1 0.3 0.1 1.3 2.9 0.9 3.6
Social assistance . . . . . . . . . . . . . . . . . . . 73.8 68.6 71.1 75.6 92.1 88.1 98.1 85.5
Other expenditure . . . . . . . . . . . . . . . . . . 38.9 21.6 5.5 4.1 3.4 27.9 11.6 46.4
Total central government
expenditure . . . . . . . . . . . . . . . . . 628.8 697.4 883.7 1,010.6 1,137.2 1,280.4 1,190.8 1,392.4
Transfer to Regions:
Balanced funds:
Revenue sharing funds . . . . . . . . . . 76.1 92.2 96.9 111.5 88.5 117.7 103.9 127.7
General allocation funds . . . . . . . . . 186.4 203.6 225.5 273.8 311.1 341.2 341.2 352.9
Specific allocation funds . . . . . . . . . 24.7 20.9 24.8 25.9 30.8 33.0 31.9 35.8
Total balanced funds . . . . . . . . . . . . 287.3 316.7 347.2 411.3 430.4 491.9 477.0 516.4
Special autonomy and adjustment funds:
Special autonomy funds . . . . . . . . . 9.5 9.1 10.4 12.0 13.4 16.1 16.1 16.6
Specific Fund for Special Region of
Yogyakarta(1) . . . . . . . . . . . . . . . . 0.5 0.4 0.5
Adjustment funds . . . . . . . . . . . . . . 11.8 18.9 53.7 57.4 69.5 87.9 80.1 104.4
Total special autonomy funds
and adjustment fund . . . . . . 21.3 28.0 64.1 69.4 82.9 104.6 96.6 121.5
Total transfers to region . . . . . 308.6 344.7 411.3 480.6 513.3 596.5 573.8 638.0
Total expenditure . . . . . . . 937.4 1,042.1 1,295.0 1,491.4 1,650.5 1,876.9 1,764.6 2,039.5

Source: Ministry of Finance

L LKPP (Central Government Financial Report/Audited).
R Revised Budget.
B Projected figures based on 2015 Budget.
P Preliminary
(1) Starting from fiscal year 2013, the central Government allocates funds for Yogyakartas special region in other expenditures. In 2014,
this fund is allocated in a specific account as part of a transfer to this region.

In 2009, the Governments total actual expenditure was Rp937.4 trillion, equivalent to 93.7% of the years
budgeted amount of Rp1,000.8 trillion under the Revised 2009 Budget. Central government expenditure in 2009
was Rp628.8 trillion, 90.9% of the budgeted amount of Rp691.5 trillion under the Revised 2009 Budget. Total
subsidies in 2009 were Rp138.1 trillion, or 87.3% of the budgeted amount of Rp158.1 trillion under the Revised
2009 Budget, primarily due to increases in energy subsidies as a result of high oil prices. Total transfers to
regions in 2009 were Rp308.6 trillion, or 99.8% of the budgeted amount of Rp309.3 trillion under the Revised
2009 Budget.

In 2010, the Governments total expenditure was Rp1,042.1 trillion, equivalent to 92.5% of the Revised
2010 Budget amount of Rp1,126.1 trillion. Central government expenditure in 2010 was Rp697.4 trillion,

176
equivalent to 89.2% of the Revised 2010 Budget amount of Rp781.5 trillion. Actual subsidies in 2010 were
Rp192.7 trillion, equivalent to 95.7% of the Revised 2010 Budget amount of Rp201.3 trillion. Total transfers to
regions in 2010 were Rp344.7 trillion, equivalent to 100.0% of the Revised 2010 Budget amount of
Rp344.6 trillion.

In 2011, the Governments total expenditure was Rp1,295.0 trillion, equivalent to 98.0% of the Revised
2011 Budget amount of Rp1,320.8 trillion. Central government expenditure in 2011 was Rp883.7 trillion,
equivalent to 97.3% of the Revised 2011 Budget amount of Rp908.2 trillion. Actual subsidies in 2011 were
Rp295.4 trillion, equivalent to 124.5% of the Revised 2011 Budget amount of Rp237.2 trillion. Total transfers to
regions in 2011 were Rp411.3 trillion, equivalent to 99.7% of the Revised 2011 Budget amount of
Rp412.5 trillion.

In 2012, the Governments total expenditure was Rp1,491.4 trillion, equivalent to 96.3% of the Revised
2012 Budget amount of Rp1,548.3 trillion. Central government expenditure was Rp1,010.6 trillion, equivalent to
94.5% of the Revised 2012 Budget amount of Rp1,069.5 trillion. Actual subsidies were Rp346.4 trillion,
equivalent to 141.3% of the Revised 2012 Budget amount of Rp245.1 trillion. Total transfers to regions in 2012
were Rp480.6 trillion, equivalent to 100.4% of the Revised 2012 Budget amount of Rp478.8 trillion.

In 2013, the Governments total expenditure was Rp1,650.5 trillion, equivalent to 95.0% of the Revised
2013 Budget amount of Rp1,726.2 trillion. Central government expenditure was Rp1,137.2 trillion, equivalent to
94.2% of the Revised 2013 Budget amount of Rp1,196.8 trillion. Actual subsidies were Rp355.0 trillion,
equivalent to 102.0% of the Revised 2013 Budget amount of Rp348.1 trillion. Transfers to regions were
Rp513.3 trillion, equivalent to 96.9% of the Revised 2013 Budget amount of Rp529.4 trillion.

The Revised 2014 Budget includes an increase in other expenditure. The allocation for other expenditure in
the Revised 2014 Budget is Rp27.9 trillion (0.3% of GDP), which is an increase of Rp24.5 trillion compared with
the realized other expenditure in 2013.

The Revised 2014 Budget also includes an increase in transfers to regions of around 15.4% compared to the
realized transfer to regions in 2013. Transfers to regions includes a new allocation to a special fund for
Yogyakarta amounting to Rp0.5 trillion in the Revised 2014 Budget.

In 2014, the Governments total expenditure reached Rp1,764.6 trillion, equivalent to 94.0% of the Revised
2014 Budget amount of Rp1,876.9 trillion. Central government expenditure was Rp1,190.8 trillion, equivalent to
93.0% of the Revised 2014 Budget amount of Rp1,280.4 trillion. Actual subsidies were Rp392.9 trillion,
equivalent to 97.5% of the Revised 2014 Budget amount of Rp403.0 trillion. Transfers to region reached
Rp573.8 trillion, 96.2% of its target in the Revised 2014 Budget of Rp596.5 trillion.

In the 2015 Budget, total government expenditure is budgeted at Rp2,039.5 trillion, equivalent to 18.3% of
the projected 2015 GDP. Central government expenditure has been allocated Rp1,392.4 trillion equivalent to
68.3% of the total government expenditure budget. The remaining 31.7% of government expenditure has been
allocated to regional expenditure and amounts to of Rp647.0 trillion, including a rural fund of Rp9.1 trillion.

177
 The following table sets forth, by percentage, the allocation of central government development expenditure
by function for the periods indicated.

Allocation of Central Government Development Expenditure by Function

Year ended December 31,

2008L 2009L 2010L 2011L 2012L 2013L 2014R 2015B
(percentages)
General Public Services . . . . . . . . . . . . . . . . . . . 77.1 66.4 67.7 64.6 64.1 62.1 66.6 64.0
Defense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.3 2.1 2.5 5.8 6.1 7.7 6.5 7.0
Public order and safety . . . . . . . . . . . . . . . . . . . . 1.0 1.2 2.0 2.5 2.9 3.2 2.8 3.3
Economic affairs . . . . . . . . . . . . . . . . . . . . . . . . . 7.3 9.4 7.5 9.9 10.4 9.5 8.8 10.3
Environmental protection . . . . . . . . . . . . . . . . . . 0.8 1.7 0.9 1.0 0.9 0.9 0.8 0.8
Housing and community amenities . . . . . . . . . . . 1.8 2.3 2.9 2.6 2.6 3.0 2.2 1.5
Health . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.0 2.5 2.7 1.6 1.5 1.5 1.1 1.5
Tourism and culture . . . . . . . . . . . . . . . . . . . . . . 0.2 0.2 0.2 0.4 0.2 0.2 0.1 0.1
Religion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.1 0.1 0.1 0.2 0.3 0.3 0.3 0.4
Education . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.0 13.5 13.0 11.1 10.4 10.1 10.1 10.5
Social protection . . . . . . . . . . . . . . . . . . . . . . . . . 0.4 0.5 0.5 0.4 0.5 1.5 0.6 0.6
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0

Source: Ministry of Finance

L LKPP (Central Government Financial Report/Audited).
R Revised 2014 Budget.
B 2015 Budget.

178
 Deficit Financing. The following table sets forth, by amount, information on deficit financing for the
periods indicated.

Deficit Financing

Year ended
Year ended December 31, December 31,
2009L 2010L 2011L 2012L 2013L 2014R 2014P 2015B
(in trillions of Rupiah)
Domestic financing:
Domestic bank financing . . . . . . . . . . . . . . . 41.1 22.2 48.9 62.7 34.2 5.4 5.5 4.5
Domestic non-bank financing:
Privatization . . . . . . . . . . . . . . . . . . . . . . . . . 2.1 0.4 0.1 0.1 0.04
Asset management . . . . . . . . . . . . . . . . . . . . 0.7 1.1 1.2 1.1 1.4 1.0 0.5 0.35
Government securities (net) . . . . . . . . . . . . . 99.5 91.1 119.8 159.7 224.7 265.0 264.9 277.0
Domestic loans (net) . . . . . . . . . . . . . . . . . . 0.3 0.6 0.8 0.5 2.2 0.5 1.6
Government investment fund:
Government investment . . . . . . . . . . . . . . . . (0.5) (3.6) (1.5) (3.3)
Government capital participation . . . . . . . . . (11.7) (6.0) (9.3) (8.5) (4.0) (5.3) (5.3) (7.3)
Revolving fund . . . . . . . . . . . . . . . . . . . . . . (0.9) (2.6) (8.8) (7.0) (3.3) (4.0) (3.5) (6.1)
PT Inalum Acquisition . . . . . . . . . . . . . . . . . (4.6)
Financing Reserve . . . . . . . . . . . . . . . . . . . .
Total Government investment fund . . . . . . . (13.1) (12.2) (19.6) (18.9) (11.9) (9.3) (8.8) (12.6)
Endowment fund for education . . . . . . . . . . . . . . (1.0) (2.6) (7.0) (5.0)
Financing Reserve For Education Endowment
Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (8.4)
Guarantee fund . . . . . . . . . . . . . . . . . . . . . . . . . . . (0.7) (1.0) (1.0) (0.8)
Lending to PT PLN . . . . . . . . . . . . . . . . . . . . . . . (7.5)
Total domestic non-bank financing . . . . . . . 87.1 73.9 99.8 135.9 209.0 249.5 256.2 265.2
Total domestic financing . . . . . . . . . . . . . . . 128.2 96.1 148.7 198.6 243.2 254.9 261.7 269.7
Foreign financing:
Gross drawing:
Program loan . . . . . . . . . . . . . . . . . . . . 28.9 29.0 15.2 15.0 18.4 16.9 17.8 7.1
Project loan . . . . . . . . . . . . . . . . . . . . . 29.7 25.8 18.5 16.4 36.9 37.2 31.0 39.9
Total gross drawing . . . . . . . . . . . 58.6 54.8 33.7 31.4 55.3 54.1 48.8 47.0
On-lending to state-owned-enterprises and
local government . . . . . . . . . . . . . . . . . . . (6.2) (8.7) (4.2) (3.8) (3.9) (3.4) (1.7) (4.3)
Amortizations . . . . . . . . . . . . . . . . . . . . . . . . (68.0) (50.6) (47.3) (51.1) (57.2) (64.2) (62.4) (66.5)
Total foreign financing (net) . . . . . . . . (15.6) (4.5) (17.8) (23.5) (5.8) (13.4) (15.4) (23.8)
Total financing (net) . . . . . . . . . . 112.6 91.6 130.9 175.2 237.4 241.5 246.4 245.9

Source: Ministry of Finance

L LKPP (Central Government Financial Report/Audited).
R Revised 2014 Budget.
B 2015 Budget.
P Preliminary

In 2009, actual central government expenditure and transfers to regions were Rp937.4 trillion, while actual
revenue and grants were Rp848.8 trillion. The Government financed this deficit of approximately Rp88.6 trillion
primarily through net bond issuances of Rp99.5 trillion, domestic bank financing of Rp41.1 trillion and foreign
financing from program loans and project loans of Rp58.6 trillion. These were partially offset primarily by the
amortization outflow on foreign financings (other than bonds) of Rp68.0 trillion.

In 2010, actual central government expenditure and transfers to regions were Rp1,042.1 trillion, while actual
revenue and grants were Rp995.3 trillion. The Government financed this deficit of approximately Rp46.8 trillion
primarily through the issue of government bonds amounting to Rp91.1 trillion, domestic bank financing of
Rp22.2 trillion and foreign financing from program loans and project loans of Rp54.8 trillion. These were
partially offset primarily by the amortization outflow on foreign financings (other than bonds) of Rp50.6 trillion.

179
 In 2011, actual central government expenditure and transfers to regions were Rp1,295.0 trillion, while actual
revenue and grants were Rp1,210.6 trillion. The Government financed this deficit of approximately
Rp84.4 trillion primarily through net bond issuances of Rp119.8 trillion, domestic bank financing of
Rp48.9 trillion and foreign financing from program loans and project loans of Rp33.7 trillion. These were
partially offset by the amortization outflow on foreign financings (other than bonds) of Rp47.3 trillion.

In 2012, actual central government expenditure and transfers to regions were Rp1,491.4 trillion, while actual
revenue and grants were Rp1,338.1 trillion. The Government financed this deficit primarily through net bond
issuances of Rp159.7 trillion, domestic bank financing of Rp62.7 trillion and foreign financing from program
loans and project loans of Rp31.4 trillion. These were partially offset by the amortization outflow on foreign
financings (other than bonds) of Rp51.1 trillion.

In 2013, actual central government expenditure and transfers to regions were Rp1,650.5 trillion, while actual
revenue and grants were Rp1,438.9 trillion. The Government financed this deficit through net bond issuances of
Rp224.7 trillion, domestic bank financing of Rp34.2 trillion and foreign financing from program loans and
project loans of Rp55.3 trillion. These were partially offset by the amortization outflow on foreign financings
(other than bonds) of Rp57.2 trillion.

The Revised 2014 Budget projects a deficit of Rp241.5 trillion, higher than the actual fiscal deficit of
Rp237.4 trillion in 2013. The Government is expected to finance the projected deficit under the Revised 2014
Budget from both domestic and international sources.

In 2014, actual central government expenditure and transfers to regions were Rp1,764.6 trillion, while actual
revenue and grants were Rp1,537.2 trillion. The Government financed this deficit through net bond issuances of
Rp264.9 trillion, domestic bank financing of Rp5.5 trillion and foreign financing from program loans and project
loans of Rp48.8 trillion.

The 2015 Budget projects central government expenditure and transfers to region of Rp2,039.4 trillion,
revenue and grants of Rp1,793.6 trillion and a deficit of Rp245.9 trillion.

Revised 2014 Budget

On June 30, 2014, the Republic issued Law No. 12 of 2014 on Revision of Law No. 23 of 2013 on the
Revised 2014 Budget, which became effective as of July 1, 2014. The Governments main policies focused on
poverty eradication, infrastructure development, improving line ministries performances, controlling the
projected debt-to-GDP ratio at around 23.0%-24.0%, and adjusting budget financing to cover the rising deficit as
well as infrastructure development (including through government bond issuances, program loans, and
government capital participation for infrastructure developments).

The 2014 Budget was revised primarily due to changes in macroeconomic assumptions and an increase in
energy subsidy (fuel and electricity). These two factors may potentially cause the 2014 Budget deficit to exceed
3.0% of GDP, the limit allowed under Law No. 17 of 2003 on Public Finance. The Government thus undertook
certain protective actions as prescribed by law to revise the 2014 Budget and formulate the Revised 2014 Budget
as including:
a. efforts to increase state revenues (tax and non tax);
b. controlling the energy subsidy (fuel and electricity); and
c. cutting the budget of Ministries and Agencies spending by Rp43 trillion in relation to the unproductive
accounts and personal expenses.

The key macroeconomic assumptions underlying the Revised 2014 Budget, as compared to the key
macroeconomic assumptions underlying the 2014 Budget, are as follows:
real GDP growth rate of 5.5% in the Revised 2014 Budget, compared to an actual rate of 6.0% in the
2014 Budget;
inflation rate of 5.3% in the Revised 2014 Budget, compared to 5.5% in the 2014 Budget;
three-month short-term SPN of 6.0% in the Revised 2014 Budget, compared to 5.5% in the 2014
Budget;

180
 exchange rate of Rp11,600 to U.S.$1 in the Revised 2014 Budget, compared to Rp10,500 to U.S.$1 in
the 2014 Budget;
oil production by the Republic of 818,000 barrels of oil per day in the Revised 2014 Budget, compared
to 870,000 barrels of oil per day in the 2014 Budget;
gas production by the Republic of 1.2 million barrels of gas per day in the Revised 2014 Budget,
compared to 1.24 million barrels of gas per day in the 2014 Budget;
ICP of U.S.$105 per barrel in the Revised 2014 Budget, the same as that in the 2014 Budget; and
revised projected nominal GDP of Rp10,062.8 trillion in the Revised 2014 Budget (calculated at
current market prices), compared to Rp10,365.6 trillion in the 2014 Budget (calculated at current
market prices).

The Revised 2014 Budget shows a decrease in state revenue. Factors influencing changes in state revenue
are economic growth, inflation, currency exchange rate, crude oil price, and oil and gas lifting costs. Beside those
macroeconomic factors, change in the state revenue in 2014, especially tax revenue, is influenced by alteration in
the basis of counting. This new basis of counting and changes in macroeconomic conditions resulted in a lower
tax revenue projection for 2014.

The Revised 2014 Budget contemplates an increase in the overall central government deficit despite a
decrease in Government spending in some areas. The changes include:
a. an increase in subsidy allocation, mainly for fuel and electricity subsidies;
b. an increase in debt interest payment as an interest rate increase (three months SPN) and a weakening of
the Rupiah against the U.S. dollar;
c. a decrease in the spending of Ministries and Agencies in general due to cost-saving policies and
decreasing spending of Ministries and Agencies; and
d. an increase in certain spending reserves such as the natural disaster reserve, national health insurance
(Jamkesmas) arrears reserve, and a deficiency payment for the allowance for teacher as profession
reserve.

The Revised 2014 Budget includes a target fiscal deficit of 2.4% of the projected GDP, higher than the
projected fiscal deficit of 1.7% of GDP in the 2014 Budget and higher than the fiscal deficit of 2.2% of GDP in
2013. Total expenditure under the Revised 2014 Budget is projected to be Rp1,876.9 trillion compared to
Rp1,842.5.5 trillion in the 2014 Budget and Rp1,650.5 trillion of actual expenditure in 2013. Transfer to regions
in the Revised 2014 Budget is Rp596.5 trillion (increase of 0.7% of the 2014 Budget). It is caused by a decrease
in the Sharing fund (DBH) while the General Allocation Fund and Specific Allocation Fund remain the same.
The Revised 2014 Budget projects total revenue (including grants) of Rp1,635.4 trillion (equivalent to 16.3% of
GDP), compared to Rp1,667.1 trillion (equivalent to 16.1% of GDP) in the 2014 Budget and Rp1,438.9 trillion
(equivalent to 15.3% of GDP) in 2013. The Revised 2014 Budget projects a deficit of Rp241.5 trillion, compared
to Rp175.4 trillion in the 2014 Budget and Rp211.6 trillion in 2013. Sources of financing are mainly from
government securities (SBN) issuance and program loans. The Government has also prepared a standby loan
(Pinjaman Siaga) to provide assistance whenever access to domestic financing is difficult (particularly SBN
issuances) and the realized deficit exceeds the target in the Revised 2014 Budget.

In the Revised 2014 Budget, the energy subsidy is budgeted to be Rp350.3 trillion using a crude oil price
assumption of U.S.$105 per barrel. The energy subsidy budget increased by Rp68.2 trillion from the 2014
Budget because of changes in the macroeconomic basic assumptions and subsidy parameters (which include ICP,
exchange rate, and volume of subsidized fuel). Under the Revised 2014 Budget, the total subsidies budget
increased to Rp403.0 trillion from Rp333.7 trillion under the 2014 Budget.

Implementation of Direct Cash Distribution Program and Increases in Food and Educational Assistance
Programs.

In 2008, to mitigate the impact of higher fuel prices on Indonesias poorest citizens and as an integral part of
the fuel subsidy reductions, the Government began implementing new social policy measures, including a direct
cash distribution program and increases in food and educational assistance to the poor. These programs were
continued in 2009. In 2010, the Government discontinued the direct cash distribution program but continued to
provide food and educational assistance to the poor. In 2013, the Government implemented a program to assist
low income households that are vulnerable to the rising prices resulting from the fuel price adjustment policy.

181
The program consists of the BLSM program, which involves the distribution of Rp9.3 trillion to 15.5 million
targeted households for four months, and a safeguarding cost of Rp360 billion which will be used to ensure
BLSM reaches the targeted households and to prevent misappropriation of the fund.

The Government also has in place several policies to combat inflation and rising food prices. These involve
maintaining the amount of rice, maintaining the fertilizer retail price at a constant level based on the cost of
production, utilizing Raskin and conducting market operations through the Bureau of Logistics (Bulog), the
Government and state-owned-enterprises to help stabilize food prices, the procurement of domestic rice supplies
by Bulog which is supported by the publishing of rice tables by the Ministry of Agriculture allowing Bulog the
flexibility to purchase rice from farmers should the price of rice rise above the Government-approved ceiling
price, importing rice through Bulog prior to the beginning of the harvest season to ensure national rice stocks are
adequate, implementing fiscal policies through the adjustment of tariffs on exports of commodities and food
imports, and using a food stability fund of Rp2.6 trillion, an additional national rice reserve fund of Rp1.0 trillion
and a national seed reserve of Rp0.6 trillion to maintain the price of food commodities.

In the Revised 2013 Budget, the Government implemented the Rp12.5 trillion P4S program which includes:
BSM which includes a Shutter Mission Scholarship of Rp7.5 trillion designed to support educational
fees of students coming from low income households. The Shutter Mission Scholarship will expand the
number of students covered by the program from 8.7 million to 16.6 million, representing an increase
in the assistance provided to elementary school and madrasah ibtidaiyah students from Rp360,000 to
Rp450,000, junior high school and madrasah tsanawiyah students from Rp550,000 to Rp750,000 and
senior high school and madrasah aliyah students to Rp1.0 million including 9,641 college students
eligible for higher education and religious higher education scholarships;
the Family Hope Program designed as a social protection program to provide assistance to low income
households in respect of living costs. The program amounts to Rp0.7 trillion and will increase the
assistance provided from an average of Rp1.39 million per target family to Rp1.8 million per target
family; and
Raskin amounting Rp4.3 trillion.

The allocation to social assistance in the Revised 2014 Budget totals Rp96,655.4 billion of which
Rp93,355.4 billion will be allocated to line ministries and Rp3,300.0 billion will be allocated to non-line
ministries.

The funds will be allocated for the purposes of, among other things:
implementation of social protection programs through BOS, BSM, PKH, and continued sustainability
of the National Program for Community Empowerment (PNPM Mandiri);
improving the efficiency and consistency of the implementation of PKH and other social assistance
programs, especially the determination of the target and the type of program;
reviewing and improving the quality of BOS; and
reducing the social risks from natural disasters through the allocation disaster mitigation fund (Dana
Cadangan Penanggulangan Bencana Alam) that is intended for immediate emergency disaster relief
activities.

Reduction of Government Subsidies for Various Fuel Products and Efforts to Reduce Amounts of Fuel Subsidized
by the Government.

In the Revised 2014 Budget, the Government plans to: (i) limit energy subsides to boost capital spending in
the medium term; (ii) control the consumption of subsidized fuel through regulations, government supervision
and distribution management; (iii) reduce fuel consumption by power plants by utilizing coal, natural gas,
geothermal resource, water energy, biodiesel and solar energy; and (iv) reduce fuel consumption by cars by
providing incentives for the use of low-cost energy efficient cars. This is part of the Governments efforts in
providing sustainable fiscal conditions.

The subsidies currently given through state-owned-enterprises include:

fuel subsidies through PT Pertamina, PT AKR Corporindo Tbk and PT Surya Parna Niaga;
electricity subsidy through PT PLN;
food subsidies through Perum Bulog to families affected by poverty;

182
 fertilizer subsidies granted to state owned fertilizer producer group companies, such as PT Pupuk
Indonesia Holding Company and PT Pupuk Kujang to enable small farmers access to fertilizers in
order to increase productivity;
seed subsidies through PT Petani and PT Sang Hyang Seri to provide high quality seeds at an
affordable price;
public service obligations through PT KAI, PT POS and PT Pelni to reduce public transportation costs;
and
PSO through LKBN Antara to provide services of public information/news.

2015 Budget
Under the 2015 Budget, which was implemented pursuant to Law No. 27 of 2014 on State Budget of 2015
on October 14, 2014, the Governments main fiscal policies are focused on revenue optimization, improving
government expenditure quality, controlling the budget deficit, and debt management.

The 2015 Budget was formulated during the transition to the new Government, and included a baseline
budget that can be adjusted by the new Government. There are new policies implemented in the 2015 Budget, for
instance, budget allocation for rural areas as stated in Law Number 6 of 2014 on rural villages. The 2015 Budget
also provides for greater detail on expenditure, according to the Constitutional Court Dictum Number 35/PUU-
XI/2013 dated May 22, 2014 and the amendment of Law Number 17 of 2014 which emphasized budget
discussions between the Government and DPR.

Fiscal policy directions are implemented to accelerate sustainable and equitable economic growth with three
major objectives:
1. Managing the deficit within safe limits through optimizing government revenue and maintaining an
investment-friendly environment, as well as improving expenditure quality and structure.
2. Maintaining the debt-to-GDP ratio by obtaining financing from safe sources and directing debt to
productive activities.
3. Controlling fiscal risk by maintaining debt to domestic revenue ratio, debt service ratio, and debt
composition with measurable government assurance.

The key macroeconomic assumptions underlying the 2015 Budget, as compared to the Revised 2014
Budget, are as follows:
a real GDP growth rate of 5.8% in the 2015 Budget, compared to 5.1% in the Revised 2014 Budget;
inflation rate of 4.4% in the 2015 Budget, compared to 6.7% in the Revised 2014 Budget;
three-month short-term SPN of 6.0% in the 2015 Budget, the same as that in the Revised 2014 Budget;
exchange rate of Rp11,900 to U.S.$1 in the 2015 Budget, compared to Rp11,629 to U.S.$1 in the
Revised 2014 Budget;
oil production by the Republic of 900,000 barrels of oil per day in the 2015 Budget, compared to
818,000 barrels of oil per day in the Revised 2014 Budget;
gas production by the Republic of 1.25 million barrels of gas per day in the 2015, compared to
1.2 million barrels of gas per day in the Revised 2014 Budget;
Indonesia Crude Price (ICP) of U.S.$105 per barrel in the 2015, the same as that in the Revised 2014
Budget; and
a revised projected nominal GDP of Rp11,146.9 trillion in the 2015 Budget (calculated at current
market prices), compared to Rp10,062.8 trillion in the Revised 2014 Budget (calculated at current
market prices).

The Government aims to achieve revenue optimization by implementing fiscal incentives, adjusting the
policies for import-export fees and income tax, as well as formulating a new excise tariff for tobacco and other
goods. On the other hand, expenditure in the 2015 Budget will focus on improving infrastructure, strengthening
national connectivities, diversifying energy utilization, enhancing public welfare, as well as re-allocating social
assistance to expand the coverage of social protection programs such as BOS, BSM and PKH. Expenditure will
also focus on improving the quality of public health insurance through budget allocation for low-income
households, for poverty eradication, and for a natural disaster reserve fund. The 2015 Budget includes a target
fiscal deficit of 2.21% of the projected GDP in 2015, lower than the Revised 2014 Budget of 2.4%. Total

183
expenditure under the 2015 Budget is estimated at Rp2,039.5 trillion. The 2015 Budget total revenue (including
grants) amounts to Rp1,793.6 trillion, an increase of Rp158.2 trillion compared to its Revised 2014 Budget.

In the 2015 Budget, a rural fund is allocated for every village and is formulated by considering its
population, poverty level, and regional space. The 2015 Budget allocated Rp647.0 trillion for the Transfer to
Regions and Rural Fund, an increase of 8.5% from Revised 2014 Budget. The Balanced Fund increased to
Rp24.5 trillion, while DBH, DAU and DAK amount to Rp127.7, Rp352.9, and Rp35.8 trillion respectively.

In order to preserve fiscal sustainability, the deficit target in the 2015 Budget is approximately 2.21% of
GDP. Based on debt portofolio indicators, debt financing will cause an increase in the debt-to-GDP ratio from
25.6% in the Revised 2014 Budget to 26.0% in the 2015 Budget, an increase in the debt to domestic revenue ratio
from 157.7% to 163.8% and an increase in the amortization to domestic revenue ratio from 12.2% in the Revised
2014 Budget to 12.5% in the 2015 Budget. However, the increase is still within acceptable limits. The 2015
Budget projects a deficit of Rp245.9 trillion, Rp11.7 trillion lower than the 2015 Proposed Budget. The
Government expects to finance the projected deficit under the Revised 2014 Budget from both domestic and
international sources.

Central Government Revenue. The following table sets forth the revenue of the Government by amount and
as a percentage of the actual 2013 GDP, projected 2014 GDP (as set forth in the Revised 2014 Budget), the nine
months ended September 30, 2014 GDP and 2015 Budget, respectively.

Central Government Revenue

2013 LKPP (Audited) Revised 2014 Budget Realized 2014 BudgetP 2015 Budget
(in trillions (percentage (in trillions (percentage (in trillions (percentage (in trillions (percentage
of Rupiah) of Projected of Rupiah) of Projected of Rupiah) of realized of Rupiah) of 2015
2013 GDP) 2014 GDP) 2014 GDP) GDP)
Domestic revenue:
Tax revenue:
Domestic tax:
Income tax:
Oil and gas . . . . . . . . . . . . . . 88.7 1.0 83.9 0.8 87.4 0.9 88.7 0.8
Non-oil and gas . . . . . . . . . . . 417.7 4.6 486.0 4.8 460.1 4.6 555.7 5.0
Total income tax . . . . . . 506.4 5.6 569.9 5.7 547.6 5.4 644.4 5.8
Value added tax (VAT) . . . . . . . . . 384.7 4.2 475.6 4.7 404.7 4.0 525.0 4.7
Land and building tax . . . . . . . . . . 25.3 0.3 21.7 0.2 23.4 0.2 26.7 0.2
Duties on land and building
transfer(1) . . . . . . . . . . . . . . . . . .
Excises . . . . . . . . . . . . . . . . . . . . . 108.5 1.2 117.5 1.2 117.9 1.2 126.7 1.1
Other taxes . . . . . . . . . . . . . . . . . . 4.9 0.1 5.2 0.1 6.3 0.1 5.7 0.1
Total domestic taxes . . . 1,029.9 11.3 1,189.8 11.8 1,099.9 10.9 1,328.5 11.9
International trade taxes:
Import duties . . . . . . . . . . . . . . . . . 31.6 0.3 35.7 0.4 32.1 0.3 37.2 0.3
Export tax . . . . . . . . . . . . . . . . . . . 15.8 0.2 20.6 0.2 11.3 0.1 14.3 0.1
Total international trade
taxes . . . . . . . . . . . . . 47.4 0.5 56.3 0.6 43.4 0.4 51.5 0.5
Total tax revenue . . . . . . 1,077.3 11.9 1,246.1 12.4 1,143.3 11.4 1,380.0 12.4
Non-tax revenue:
Natural resources:
Oil . . . . . . . . . . . . . . . . . . . . . . . . . 135.3 1.5 154.8 1.5 141.1 1.4 170.3 1.5
Gas . . . . . . . . . . . . . . . . . . . . . . . . 68.3 0.8 56.9 0.6 75.8 0.8 53.9 0.5
Total oil and gas . . . . . . . . . . 203.6 2.2 211.7 2.1 216.9 2.2 224.3 2.0
General mining . . . . . . . . . . . . . . . 18.6 0.2 23.6 0.2 21.4 0.2 24.6 0.2
Forestry . . . . . . . . . . . . . . . . . . . . . 3.1 0.0 5.0 0.0 3.7 0.0 4.6 0.0
Fishery . . . . . . . . . . . . . . . . . . . . . . 0.2 0.0 0.3 0.0 0.3 0.0 0.3 0.0
Geothermal . . . . . . . . . . . . . . . . . . 0.9 0.0 0.6 0.0 0.8 0.0 0.6 0.0
Total non-oil and gas . . . . . . 22.8 0.3 29.4 0.3 26.1 0.3 30.0 0.3
Total natural resources . . . . . 226.8 2.5 241.1 2.4 242.9 2.4 254.3 2.3
Profit transfer from state-owned-enterprises . . . . . 34.0 0.4 40.0 0.4 40.3 0.4 44.0 0.4
Other non-tax revenue . . . . . . . . . . . . . . . . . . . . . . 69.7 0.8 85.0 0.8 85.4 0.8 89.8 0.8
Public Service Agency (BLU) Income . . . . . . . (2) 24.6 0.3 20.9 0.2 22.1 0.2 22.2 0.2
Total non-tax revenue . . . . . . . . . . . . . . . . . . 354.8 3.9 386.9 3.8 390.7 3.9 410.3 3.7
Total domestic revenue . . . . . . . . . . . . . . . . . 1,432.1 15.8 1,633.1 16.2 1,534.0 15.2 1,790.3 16.1
Grants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.8 0.1 2.3 0.0 3.2 0.0 3.3 0.0
Total revenue and grants . . . . . . . . . . . . . . . . 1,438.9 15.8 1,635.4 16.3 1,537.2 15.3 1,793.6 16.1

Source: Ministry of Finance

P Preliminary
(1) Starting from January 1, 2011, duties on land and building transfer is no longer budgeted as government revenue from taxation income
and instead is diverted into local tax. This diversion is intended to strengthen local taxing power and to improve regional autonomy
executive accountability.

184
(2) Includes Governments share of Bank Indonesia profits representing amounts in excess of Bank Indonesias capital ratio requirements,
which excess amounts are transferred to the central Government to be used for repayments of certain central government obligations to
Bank Indonesia.

The Revised 2014 Budget projects total revenue (including grants) of Rp1,635.4 trillion (equivalent to
16.3% of GDP), compared to real total revenue and grants amounting to Rp1,438.9 trillion (equivalent to 15.8%
of GDP) in 2013. The increase under the Revised 2014 Budget is mainly due to growth in the economy, an
increase in the number of high and middle-income individual taxpayers and increased tax revenue from a number
of potential sources in addition to increased revenue through the optimization of oil and gas production on
existing oil and gas fields, accelerated development of new oil and gas fields and adjustments to tariffs.

In the 2015 Budget, total revenue (including grants) is projected to be Rp1,793.6 trillion, consisting of tax
revenue of Rp1,380.0 trillion , non-tax revenue of Rp410.3 trillion and grants of Rp3.3 trillion.

Government Expenditure. The following table sets forth the budgeted expenditure of the Government, by
amount and as a percentage of the actual 2013 GDP, projected 2014 GDP (as set forth in the Revised 2014
Budget), the nine months ended September 30, 2014 GDP respectively, together with the budgeted expenditure
of the Government for the year 2015.

Central Government Expenditure

2013 LKPP (Audited) Revised 2014 Budget Realized 2014 BudgetP 2015 Budget
(in trillions (percentage (in trillions (percentage (in trillions (percentage (in trillions (percentage
of Rupiah) of Projected of Rupiah) of Projected of Rupiah) of realized of Rupiah) of 2015
2013 GDP) 2014 GDP) 2014 GDP) GDP)
Central government expenditures:
Personnel expenditures . . . . . . . . . . . . 221.7 2.4 153.2 1.5 155.3 1.5 293.1 2.6
Good and services expenditures . . . . . 169.7 1.9 194.9 1.9 163.3 1.6 222.5 2.0
Capital expenditures . . . . . . . . . . . . . . 180.9 2.0 160.8 1.6 145.8 1.5 174.7 1.6
Interest payments:
Domestic debt . . . . . . . . . . . . . . . . . . . 98.7 1.1 120.6 1.2 118.8 1.2 137.9 1.2
Foreign debt . . . . . . . . . . . . . . . . . . . . 14.3 0.2 14.9 0.1 14.5 0.1 14.0 0.1
Total interest payments . . . . . . . 113.0 1.2 135.5 1.3 133.4 1.3 152.0 1.4
Subsidies:
Energy subsidies . . . . . . . . . . . . . . . . . 310.0 3.4 350.3 3.5 341.8 3.4 344.7 3.1
Non-energy subsidies . . . . . . . . . . . . . 45.1 0.5 52.7 0.5 51.0 0.5 70.0 0.6
Total subsidies . . . . . . . . . . . . . . 355.0 3.9 403.0 4.0 392.9 3.9 414.7 3.7
Grant expenditures . . . . . . . . . . . . . . . 1.3 0.0 2.9 0.0 0.9 0.0 3.6 0.0
Social assistance . . . . . . . . . . . . . . . . . 92.1 1.0 88.1 0.9 98.1 1.0 85.5 0.8
Other expenditures . . . . . . . . . . . . . . . 3.4 0.0 27.9 0.3 11.6 0.1 46.4 0.4
Total central government
expenditures . . . . . . . . . . . . . . 1,137.2 12.5 1,280.4 12.7 1,190.8 11.8 1,392.4 12.5
Transfers to Regions:
Balanced funds:
Revenue sharing funds . . . . . . . . 88.5 1.0 117.7 1.2 103.9 1.0 127.7 1.1
General allocation funds . . . . . . . 311.1 3.4 341.2 3.4 341.2 3.4 352.9 3.2
Specific allocation funds . . . . . . 30.8 0.3 33.0 0.3 31.9 0.3 35.8 0.3
Total balanced funds . . . . . 430.4 4.7 491.9 4.9 477.0 4.7 516.4 4.6
Special autonomy and adjustment
funds:
Specific autonomy funds . . . . . . . . . . 13.4 0.1 16.1 0.2 16.1 0.2 16.6 0.1
Specific Fund for Special Region of
Yogyakarta(1) . . . . . . . . . . . . . . . . . . . . . 0.5 0.0 0.4 0.0 0.5 0.0
Adjustment funds . . . . . . . . . . . . 69.5 0.8 87.9 0.9 80.1 0.8 104.4 0.9
Total special autonomy
funds and adjustment
fund . . . . . . . . . . . . . . . . . 82.9 0.9 104.6 1.0 96.6 1.0 121.5 1.1
Total transfers to regions . . 513.3 5.7 596.5 5.9 573.8 5.7 638.0 5.8
Total expenditures . . . 1,650.5 18.2 1,876.9 18.7 1,764.6 17.6 2,039.5 18.3

Source: Ministry of Finance

P Preliminary
(1) Starting from fiscal year 2013, central Government allocates specific fund for Yogyakartas privilege in other expenditures. In 2014, this
fund is allocated in special autonomy and adjustment funds as part of transfer to region.

185
 Total expenditure under the Revised 2014 Budget is projected to be Rp1,876.9 trillion (equivalent to 18.7%
of projected GDP), higher than the projected total expenditure of Rp1,726.1 trillion in the Revised 2013 Budget
(equivalent to 18.4% of projected GDP) and higher than the actual total expenditure of Rp1,650.5 trillion
(equivalent to 18.2% of GDP) in 2013.

The Revised 2014 Budget includes an increase in other expenditures. The allocation for other expenditures
in the Revised 2014 Budget is Rp27.9 trillion (0.3% of projected GDP), which is an increase of Rp24.5 trillion
compared with the realized amount of other expenditures in 2013. Of the Rp27.9 trillion allocation in the Revised
2014 Budget, Rp6.2 trillion will be allocated to fiscal risk reserves and Rp21.7 trillion will be allocated to other
expenditures. The increase in other expenditures is due to making oil payments in arrears for Ministry of
Defense, funding a reserve for social protection, and military equipment and operation costs for Indonesia
Financial Services.

The Revised 2014 Budget also includes an increase in transfers of funds to regions of around 16.2%
compared to the realized amount of transfers of funds to regions in 2013. Transfers of funds to regions includes a
new allocation to a special fund for Yogyakarta amounting to Rp0.5 trillion in the Revised 2014 Budget and also
includes an increase in social assistance spending (an increase of around 4.9% compared to the realized social
assistance spending in 2013).

The 2015 Budget Expenditure consists of Rp647.3 trillion for ministries and agencies expenditure,
Rp647.0 trillion for transfer of funds to regions, Rp9.1 trillion for the rural fund, Rp414.7 trillion for subsidies,
Rp152.0 trillion for amortization, and Rp46.4 trillion for other expenditures.

186
 Central Government Deficit Financing. The following table sets forth the budgeted deficit financing of the
Government, by amount and as a percentage of the actual 2013 GDP, the projected 2014 GDP (as set forth in the
Revised 2014 Budget), the nine months ended September 30, 2014 GDP, together with the budgeted deficit
financing of the Government for the projected 2015 GDP.

Deficit Financing

2013 LKPP (Audited) Revised 2014 Budget Realized 2014 BudgetP 2015 Budget
(in trillions (percentage (in trillions (percentage (in trillions (percentage (in trillions (percentage of
of Rupiah) of Projected of Rupiah) of Projected of rupiah) of realized of rupiah) 2015 GDP)
2013 GDP) 2014 GDP) 2014 GDP)
Domestic financing:
Domestic bank financing . . . . . . . . . . . . . 34.2 0.4 5.4 0.1 5.5 0.0 4.5 0.0
Domestic non-bank financing:
Privatization . . . . . . . . . . . . . . . . . . . . . . 0.1 0.0 0.04 0.0
Assets management . . . . . . . . . . . . . . . . . 1.4 0.0 1.0 0.0 0.5 0.0 277.0 2.5
Government securities (net) . . . . . . . . . . 224.7 2.5 265.0 2.6 264.9 2.6 1.6 0.0
Domestic loans (net) . . . . . . . . . . . . . . . . 0.5 0.0 2.2 0.0 0.5 0.0
Government investment fund:
Government investment . . . . . . . . . 0.8
Government capital Participation . . (4.0) (0.0) (5.3) (0.1) (5.3) (0.1) (7.3) (0.1)
Revolving fund . . . . . . . . . . . . . . . . (3.3) (0.0) (4.0) (0.0) (3.5) (0.0) (6.1) (0.1)
PT Inalum Acquisition . . . . . . . . . . (4.6) (0.1)
Financing Reserves . . . . . . . . . . . . .
Total Government
investment fund . . . . . . (11.9) (0.1) (9.3) (0.1) (8.8) 0.0 (12.6) (0.1)
Endowment fund for
education . . . . . . . . . . . . . . . (5.0) (0.1)
Financing Reserve For
Education Endowment
Fund . . . . . . . . . . . . . . . . . . (8.4) (0.1)
Guarantee fund . . . . . . . . . . . . (0.7) (0.0) (1.0) (0.0) (0.8) (0.0)
Lending to PT PLN . . . . . . . . .
Total domestic non-bank
financing . . . . . . . . . . . 209.0 2.3 249.5 2.5 256.2 2.5 265.2 2.4
Total domestic
financing . . . . . . . . . . . 243.2 2.7 254.9 2.5 261.7 2.6 269.7 2.4
Foreign financing:
Gross drawing:
Program loan . . . . . . . . . . . . . . 18.4 0.2 16.9 0.2 17.8 0.2 7.1 0.1
Project loan . . . . . . . . . . . . . . . 36.9 0.4 37.2 0.4 31.0 0.3 39.9 0.4
Total gross drawing . . . . . 55.3 0.6 54.1 0.5 48.8 0.5 47.0 0.4
On-lending to state-owned-
enterprises and local
government . . . . . . . . . . . . . (3.9) (0.0) (3.4) (0.0) (1.7) (0.0) (4.3) (0.0)
Amortizations . . . . . . . . . . . . . (57.2) (0.6) (64.2) (0.6) (62.4) (0.6) (66.5) (0.6)
Total foreign financing
(net) . . . . . . . . . . . . . . . (5.8) (0.1) (13.4) (0.1) (15.4) (0.2) (23.8) (0.2)
Total financing (net) . . . . 237.4 2.6 241.5 2.4 246.4 2.5 245.9 2.2

Source: Ministry of Finance

P Preliminary

The Revised 2014 Budget projects a deficit of Rp241.5 trillion, higher than the actual fiscal deficit of
Rp237.4 trillion in 2013. The Government is expected to finance the projected deficit under the Revised 2014
Budget from both domestic and international sources.

In 2011, the Government planned to: (i) reduce the subsidies on kerosene and apply these subsidies to LPG;
(ii) increase utilization of alternative energy, such as biofuels (BBN) mixed into in subsidized fuel and fuel gas
(CNG); (iii) conduct a study on restrictions on categories of users and restrictions on the volume of subsidized
fuel; (iv) control the use of subsidized fuel through a closed distribution system and gradual improvement of
regulation; and (v) disseminate energy-saving information and hold fuel-efficiency campaigns.

In 2012, the Government planned to: (i) reduce the retail price fuel; (ii) control the consumption of
subsidized fuel by encouraging the use of alternative energy, such as natural gas, coal and biodiesel; and
(iii) prohibit government vehicles, vehicles used by state-owned-enterprises and vehicles owned by plantations
and mining companies from using subsidized fuel.

187
 In the Revised 2013 Budget, the Government planned to: (i) limit the energy subsides to boost capital
spending in the medium term; (ii) control the consumption of subsidized fuel through regulations, government
supervision and distribution management; (iii) reduce fuel consumption by power plants by utilizing coal, natural
gas, geothermal resource, water energy, biodiesel and solar energy; and (iv) reduce fuel consumption by
providing incentives for the use of low cost energy efficient cars.

Fuel subsidy in the Revised 2013 Budget was approximately Rp199.9 billion. For 2013, the Government of
the Republic set an ICP of U.S.$108 per barrel and estimated a volume of consumption of approximately
48 million kiloliters. In addition, to reduce the surge in fuel subsidies in 2013, on June 22, 2013, the Government
established a policy to raise subsidized fuel prices on a per liter basis and increased gasoline prices by Rp2,000
per liter to Rp6,500 per liter and diesel prices by Rp1,000 per liter to Rp5,500 per liter.

On January 2, 2013, the MEMR issued MEMR Regulation No. 1 of 2013 regarding Control on Fuel
Consumption MEMR No. 1/2013 pursuant to which the Government is gradually limiting the consumption of
subsidized gasoline (Ron-88) by motor vehicles owned by the Government, state-owned-enterprises or region-
owned enterprises: (i) in the region of Java and Bali; (ii) in the region of Sumatera and Kalimantan, from
February 1, 2013; and (iii) in the region of Sulawesi, from July 1, 2013. The Government is also limiting the
consumption of subsidized gas oil/diesel oil by motor vehicles owned by the Government, state-owned-
enterprises or region-owned enterprises: (x) in the region of Jabodetabek, from February 1, 2013; and (y) in other
regions in Java and Bali, from March 1, 2013. Such subsidized gasoline and gas oil/diesel oil consumption
limitations will not, however, apply to ambulances, hearses, fire engines and waste collection vehicles owned by
the Government or state- or region-owned enterprises. The prohibition on the consumption of subsidized gas oil/
diesel oil by sea transportation, non-sea pioneer and non-mass freight transportation commenced on February 1,
2013.

The consumption of subsidized gas oil/diesel oil by four-or more-wheeled cargo vehicles used for
transporting products from plantation and mining activities is also not allowed. Such prohibition has applied in
respect of such vehicles transporting forestry produce since March 1, 2013. Such prohibition will not, however,
apply to cargo vehicles used for transporting products from public mines, public plantations comprising less than
25 hectares, public and state forests and stone quarries.

For the year ended December 31, 2013, the amount spent on subsidies was higher than the level allocated in
the Revised 2013 Budget, mainly as a result of depreciation in the Rupiah.

The allocation to energy subsidies in the Revised 2014 Budget has been decreased as a result of the
implementation of the Governments policy to limit energy subsidies.

With the issuance of Regulatory Board on Downstream Oil and Gas (BPH MIGAS) Circular Letter
No. 937/07/Ka BPH/2014 dated July 24, 2014, the Government intends to maintain the fuel subsidy quota of
46 million kiloliters until the end of 2014 as a result of the Revised 2014 Budget. The Circular Letter aims to
control sales of subsidized diesel oil and gasoline. Sales of subsidized diesel oil are no longer allowed in the
Central Jakarta region as of August 1, 2014. Commencing August 4, 2014, the sale of subsidized diesel oil in gas
stations within certain areas in Java, Sumatra, Kalimantan and Bali has been restricted to the hours of 8am to
6pm local time. The restrictions are aimed at reducing the misuse of subsidized diesel oil in areas containing
industrial, mining, plantation and port areas. Allocation of subsidized diesel oil to fuel distribution agency for
fisherman is cut to 20.0% with lower than 30 gross tonnage fishing boats becoming primary target for
distribution of subsidized diesel oil, effective as of August 4, 2014. Starting from August 6, 2014 all highway gas
stations are not allowed to sell subsidized gasoline.

Budget and Taxation Reform

In early 2005, the Government introduced an integrated budgetary system to clarify and focus government
spending decisions and improve efficiency. The Government is currently seeking to make Indonesias tax
administration more business-friendly by focusing on transparency and equality of treatment, by simplifying
procedures and by setting tax rates that are competitive with those in comparable economies. The Government is
also making efforts to strengthen its customs enforcement to curb smuggling activities.

Tax administration reforms have been underway for some time but are now being accelerated. Traditionally,
Indonesias tax office (Kantor Pelayanan Pajak) was organized by type of tax. A taxpayer was required to deal
separately with tax officials responsible for corporate income tax, VAT, property tax and other types of tax, as
applicable. In July 2002, the Minister of Finance implemented Tax Reform Chapter One which was completed in

188
2008. The reform resulted in modernized and more efficient organizational structures, simplified and transparent
business processes, and improved governance in tax offices. Since 2009, the following tax services offices were
established: five large tax services offices (Kantor Pelayanan Pajak (KPP) Wajib Pajak Besar), 28 medium
sized tax services offices (KPP Madya) and 299 small tax services offices (KPP Pratama). In addition, 207 tax
services, dissemination and consultation offices (Kantor Pelayanan, Penyuluhan dan Konsultasi Pepajakan)
were established to facilitate tax counseling for taxpayers in remote areas. In April 2012, the oil and petroleum
tax office (KPP Minyak dan Gas Bumi) was established and the non-resident corporate and individual tax office
1 and 2 were merged to form the non-resident corporate and individual tax office.

In June 2009, the Minister of Finance implemented Tax Reform Chapter Two with a focus on two key
aspects, namely, human resources and information and communication technology. This reform is executed
through several projects including the reformation of tax policies, the provision of tax incentives through
legislative amendments, improving business processes, developing an integrated information system, and
enhancing potential tax revenue analyses and capabilities. Through 2009, Tax Reform Chapter Two resulted in
the extension of the sunset policy, establishment of a High Wealth Individual Taxpayers Office which in 2012
converted into the Large Taxpayers Office IV, a drop box for tax returns and improvements in the quality of
service.

Other initiatives designed to assist taxpayers include simplified VAT audits, refunds for taxpayers who file
accurate returns and various reforms designed to improve the quality of taxpayer service, including improving
access to information and adopting a taxpayer bill of rights and a tax officer code of ethics. To improve VAT
administration in Indonesia, the Directorate General of Taxes implemented a program called the Re-registration
of Taxable Enterprise on February 3, 2012 through the Directorate General of Tax Regulation No.
PER-05/PJ/2012, as amended by Directorate General of Tax Regulation No. 20/PJ/2012 on Amendment to
Directorate General of Tax Regulation No. PER-05/PJ/2012 on Re-registration of Taxable Enterprises. The aim
of the program was to ensure that only taxable enterprises that have fulfilled certain requirements can be
involved in the VAT collection mechanism. On November 22, 2012, the Directorate General of Taxes also issued
Director General of Tax Regulation No. PER-24/PJ/2012, as amended on March 27, 2013 by Director General of
Tax Regulation No. PER-08/PJ/2013, which applies stricter controls for the numbering of tax invoices in order to
minimize the risk of counterfeit tax invoices that can be used in tax crimes. These two policies have been
undertaken in anticipation of the 2014 implementation of the e-tax invoice system. In December 2013, the
Minister of Finance Regulation No. 197/PMK.03/2013 on the amendment to the Minister of Finance Regulation
No. 68/PMK.03/2010, stipulate that the threshold for a small scale VAT taxable enterprise would increase from
Rp600 million to Rp4.8 billion. The new threshold is in line with the Government Regulation No. 46 of 2013
setting out those individuals subject to final tax of 1.0%.

In relation to the development of the VAT administration system, the Minister of Finance issued the
Minister of Finance Regulation No. 151/PMK.03/2013 to implement the use of electronic VAT invoice (e-tax
invoice). In 2014, the Director General of Taxes issued further regulations to address the implementation of e-tax
invoice system. The Director General of Tax Regulation No. PER-16/PJ/2014 regulates the procedures of
preparing and reporting the e-tax invoice and mandatory use of e-tax invoice for taxable enterprises appointed by
the Directorate General of Taxes starting in July 1, 2014 in the Director General of Tax Regulation No. KEP-
136/PJ/2014. The timeline of the mandatory use of e-tax invoices is as follows:
in July 2014, for 45 taxable enterprises listed in the KEP-136/PJ/2014;
in July 2015, for other taxable enterprises under the Director General of Taxes Regional Offices in Java
and Bali regions; and
in July 2016, for the remaining and new taxable enterprises.

The Directorate General of Taxes also issued the Director General of Tax Regulation No. PER-17/PJ/2014
as the second amendment to the Director General of Tax Regulation No. PER-24/PJ/2012. The new regulation
stipulates that the taxable enterprise can obtain the serial number of tax invoices through a website governed by
the Directorate General of Taxes. This can only be done if the taxable enterprise has already obtained the
electronic certificate issued by the Directorate General of Taxes. This certificate functions as an authentication
for the taxable enterprise to use electronic services provided by the Directorate General of Taxes, i.e. the request
for tax invoice serial numbers through DGT-governed website and the application to prepare e-tax invoice.

In March 2010, the Government enacted the Minister of Finance Regulation No. 76/PMK.03/2010 as
amended by Minister of Finance Regulation No. 100/PMK.03/2013 on the Second Amendment to the Minister of
Finance Regulation No. 76/PMK.03/2010 on the Procedure of Filing and Settlement of VAT Refund for

189
Individual Holding Foreign Passport. This is a tax facility that enables international tourists to claim VAT
refunds on goods purchased in any store in Indonesia with the VAT Refund for Tourist logo by showing their
passport and a valid tax invoice at the airport. This regulation was later amended in 2011 and 2013 to further
elaborate on the forms to be submitted for obtaining a refund.

To improve tax collection, the Government is also introducing measures to ensure that all persons and
corporations with income levels above the non-taxable income level have taxpayer identification numbers,
preparing a database for taxpayer information including income, property and vehicle registration information,
and developing an on-line network in cooperation with other institutions. In 2006, the Directorate General of
Taxes implemented a program for greater cooperation and coordination with business and professional
associations. This program was designed to facilitate data collection and to gain input from these associations in
the tax collection process, with the goal of increasing tax revenue.

Consistent with the amendments to applicable income tax regulations, the Government issued Government
Regulation No. 52 of 2011 on Second Amendment to the Government Regulation No. 1 of 2007 on Income Tax
Facilities for Investment in Certain Business Sectors and/or in Certain Regions to implement income tax
incentives for investment in certain sectors and provinces. As stipulated in such laws and regulations, the
incentives include:
an investment allowance of 30% of the total investment, charged for six years for 5% per year;
accelerated depreciation and amortization of assets through a 50.0% reduction in their useful life and a
doubling of the depreciation and amortization rate;
an extension of loss carry-forward to a maximum of ten years from five years; and
a reduction in the tax rate on dividend payments to non-residents to 10.0% (or a lower rate if so
provided by a tax treaty).

The incentives enumerated above are to be utilized by the tax payer on realizing a minimum of 80.0% of the
investment.

On December 28, 2007, the Minister of Finance adopted a new tax regulation, Government Regulation
No. 81 of 2007 on Income Tax Reduction for Public Listed Companies (GR No.81/2007), effective January 1,
2008, which reduces the corporate income tax rate of publicly listed companies that meet certain conditions.
Under this regulation, an Indonesian publicly listed company can apply for a 5.0% reduction in its corporate
income tax rate if: (i) at least 40.0% of its total paid up shares are traded on the Indonesian stock exchange;
(ii) those shares are owned by at least 300 public shareholders; (iii) each of these public shareholders owns less
than 5.0% of its total paid up shares; and (iv) these conditions are met by the company for a period of at least six
months during the fiscal year. This GR No.81/2007 was replaced with Government Regulation No.77 of 2013
dated November 21, 2013 that further aligned the 5.0% reduction rate to the new corporate income tax rate
introduced by Income Tax Law No.36 of 2008 as further described below.

Law No. 36 of 2008 on the Fourth Amendment to the Law No. 7 of 1983 on Income Tax entered into force
on January 1, 2009, amending Income Tax Law no. 17 of 2000. The law aims to simplify the countrys tax
regulations and broaden the tax base by making it easier for taxpayers to pay their taxes. The amendment
implements a single corporate income tax rate of 28.0% in 2009, which was reduced to 25.0% in 2010. It also
lowers the highest personal income tax rate from 35.0% to 30.0%, and reduces the number of tax brackets from
five to four. The amendments also provide tax incentives for entrepreneurs, small and medium-sized enterprises
and non-profit organizations, and donations for education, sports and disaster relief. In addition, the amendments
provide lower corporate income tax rate of 20.0% since 2010 for publicly listed companies with 40.0% or more
of their shares held by the public and which fulfill other requirements. The Government estimates that these
reforms will result in a loss of tax revenue of approximately Rp40.8 trillion in 2009. Although these reforms will
reduce revenues in the short term, it is expected that these reforms will, in the medium and long term, stimulate a
more competitive and sound economic environment.

Pursuant to Government Regulation No. 16 of 2009 (GR No. 16/2009) relating to Income Tax on Interest
Income from Bonds Interest, the applicable income tax rates on interest income from investments in bonds were
reduced for certain categories of resident corporate taxpayers. GR No.16/2009 has been amended by Government
Regulation No.100 of 2013 issued on December 31, 2013. With the amendment of GR No.16/2009 tax rates on
interest income of mutual fund tax payers registered with OJK shall remain at 5.0% income tax rate as of year
2014 until 2020, while a 10.0% rate shall be applicable from year 2021 onward. This amendment is designed to
foster the growth of the mutual fund industry.

190
 Director General of Taxes (DGT) Regulation No. PER 62/PJ/2009 on the Prevention of Misappropriate Use
of Approval of Double Taxation Evasion dated November 5, 2009, as amended by DGT Regulation
No. PER-25/PJ/2010 dated April 30, 2010, disallows application of a tax treaty provision if there is evidence of
abuse. Abuse may be deemed to have occurred if a transaction is without economic substance and is used merely
to obtain a benefit from a tax treaty, if there is a difference between the economic substance and legal form of a
transaction and it is used merely to obtain a benefit from a tax treaty, or if the recipient of the income is not the
beneficial owner of the income (e.g., it is an agent or nominee). For a company not to be considered as a vehicle
for abuse, its establishment must not be solely for utilizing a tax treaty benefit, it must have its own management,
it must have employees, it must have an active business, its Indonesian-source income should be subject to
income tax in the recipient country and it must not use more than half its income to meet its obligations (e.g.,
interest, royalty or other compensation) to other parties. Based on these provisions, in the case of offshore bond
issuances by Indonesian companies, Indonesian tax authorities are likely to deny the use of special purpose
companies to utilize tax treaty benefits, resulting in the application of the regular 20.0% withholding tax to
interest payments to Indonesian-owned offshore bond issuers.

Pursuant to the Minister of Finance Regulation No. 10/PMK.03/2013 dated February 2, 2013, a non-resident
who has been subjected to withholding tax by an Indonesian withholding tax agent may apply for a tax refund to
the Directorate General of Taxes if the tax withheld is not in accordance with Indonesias income tax law in force
and/or any double taxation treaty.

Pursuant to MOF No. 130/2011 as replaced by MOF No. 192/2014 on Granting of Exemption or Reduction
Facility on Income Tax for Legal Entity, income tax exemptions or reduction facilities may be granted to
qualified Indonesian legal entities operating in certain industries and with plans for capital investment meeting
specific criteria, with due consideration to the competitiveness of the national industries and the strategic value of
certain business activities.

The Government seeks to continue to expand the countrys tax base by increasing the number of registered
taxpayers. The Government has reviewed non-tax databases, including property records and the payrolls of large
employers, and has sent notices to individuals it believes to be potential unregistered taxpayers encouraging them
to register. If recipients of these notices do not register, they will be subject to higher tax rates than those
applicable to registered taxpayers. The Government is also implementing a lower tax rate applicable to a larger
number of potential taxpayers, educating the general public as to taxation and increasing the publics access to
guidance on tax policies and procedures, changes that the Government believes will improve compliance and
increase the tax base. Under another program, taxpayers had been given a period of 14 months (ending February
2009) to ensure that their tax returns were properly completed and filed, following which the Government has
been enforcing penalties on errant taxpayers and has adopted a stricter approach toward them.

In relation to excise policies, the Government seeks to control the consumption of tobacco products and
ethyl alcohol (including beverages containing ethyl alcohol) by continuously increasing tariffs on these products.
The excise tariff on alcohol was raised by an average rate of 152.0% during 2010, and by an average rate of 8.5%
for tobacco products during 2012. In addition, the Directorate General of Customs and Excise works against
illegal or counterfeit excise ribbons, and seeks to improve the quality of supervision and enforcement of excise
laws and regulations. In May 2012, the Government implemented a graduated progressive CPO export tax
structure, with twelve levels of export taxes ranging from nil (if the average price for CPO in Rotterdam,
Malaysia, and Indonesia is less than U.S.$750 per ton) to 22.5% (if the average price for CPO in Rotterdam,
Malaysia, and Indonesia is greater than U.S.$1,250 per ton). The Government revised the export tax structure
applicable to exports of CPO and related oil palm products to discourage export of these products and the
resulting shortages and increases in prices of cooking oil and palm kernel oil in the domestic markets in response
to CPO price increases in world markets.

The domestic tax regime has been significantly improved since the introduction of Law No. 28 of 2009 on
Local Taxes and Charges. The Acquisition Duty of Right on Land and Buildings (Bea Perolehan Hak atas Tanah
dan Bangunan or BPHTB) and the Urban-Rural Land and Building Tax (Pajak Bumi dan Bangunan
Perdesaan dan Perkotaan or PBB-P2) have been transferred from the central to the local governments. Both
BPHTB and PBB-P2 were implemented in 2011 and local governments are now required to issue local
regulations in order to collect them. The collection and utilization of PBB-P2 is now completely under the
purview of local governments. This means that the central Government is only responsible for the collection and
utilization of Land and Building Tax in Plantation, Forestry and Mining sectors (Pajak Bumi dan Bangunan
Sektor Perkebunan, Perhutanan, dan Pertambangan or PBB-P3).

191
 For a discussion of the Republics tariff reform measures, see Foreign Trade and Balance of Payments
Membership in International and Regional Free Trade Agreements and Tariff Reforms.

Public Debt
Over the last eight years, Indonesia has made substantial improvement in its public debt management. The
reduction of public debt in percentage-of-GDP terms has been a consistent key fiscal policy objective of the
Government. To achieve this objective, the Governments policy has emphasized the strengthening of public debt
management, the lengthening and balancing of the maturities of public debt and the growth of public debt at
sustainable levels. Pursuant to these policies, the Republic successfully reduced its public debt as a percentage of
GDP from 39.0% in 2006 to 26.0% of GDP in 2010, 24.3% in 2011 and 24.0% in 2012. In 2013, public debt was
26.2% as a percentage of GDP. Total public debt remained relatively stable at U.S.$198.9 billion as of
December 31, 2011 compared to U.S.$186.4 billion as of December 31, 2010. As of December 31, 2011, 34.0%
of the public debt consisted of loans and 66.0% consisted of securities. As of December 31, 2012, the total public
debt was U.S.$204.28 billion, 31.1% of which consisted of loans and 68.9% of which consisted of securities. As
of December 31, 2013, the total public debt was U.S.$194.5 billion, 30.0% of which consisted of loans and
70.0% of which consisted of securities.

As of September 30, 2014, the total public debt was U.S.$213.1 billion, 26.3% of which consisted of loans
and 73.7% of which consisted of securities.

Public External Debt of the Republic

Public external debt of the Republic consists of central government debt (other than public domestic debt)
and debt of Bank Indonesia owed to creditors outside Indonesia. The disclosure that follows treats the external
debt of Bank Indonesia as part of the Republics external debt. However, SBI, which are issued by Bank
Indonesia in its role as formulator and implementer of the Republics monetary policy, are not considered
liabilities of the Republic. Accordingly, SBI are not reflected in the government debt discussions in this Offering
Memorandum. See Financial System Bank Indonesia. The discussion of debt of the Republic in this section
differs from the discussion of government debt elsewhere in this Offering Circular, in which Bank Indonesia
debt is excluded and only central government debt, which depends on central government revenue for its
repayment, is included. See Government Budget Central Government Finances.

The following table sets forth information on the outstanding public external debt of the Republic in terms
of creditor type as of the dates indicated.

Outstanding Public External Debt of the Republic by Source(1)

As of
As of December 31, October 31,
2009 2010 2011 2012 2013 2014
(in billions of U.S. dollars)
Concessional Loans:
Multilateral creditors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21.5 23.1 23.4 23.8 23.6 22.8
Bilateral creditors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33.7 35.6 35.7 32.2 27.0 25.0
Semi-concessional Loans:
Export agency creditors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.5 8.8 8.1 7.0 6.0 5.5
Leasing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.5 18.6 22.2 28.0 34.1 39.1
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80.2 86.1 89.4 91.0 90.7 92.4
Total public external debt of the Republic, as a percentage of
GDP for the period indicated(3) . . . . . . . . . . . . . . . . . . . . . . 14.6% 12.0% 10.5% 10.3% 10.4%
Source: Ministry of Finance
(1) Foreign currency values of outstanding external debt have been converted into U.S. dollars at the applicable BI middle exchange rates as
of the respective dates indicated.
(2) Includes securities (bonds and sukuk) issued in international capital markets and commercial bank borrowings.
(3) In calculating as a percentage of GDP, GDP in U.S. dollars has been converted from Rupiah into U.S. dollars at the following exchange
rates per U.S. dollar: Rp10,176.9 per U.S. dollar for 2009, Rp8,997.9 per U.S. dollar for 2010, Rp8,697.1 per U.S. dollar for 2011,
Rp9,357.9 per U.S. dollar for 2012, Rp10,431 per U.S. dollar for 2013 and Rp11,742.5 per U.S. dollar for the nine months ended
September 30, 2014. Exchange rates for 2009 to 2014 were calculated by BPS with reference to the weighted average monthly exchange
rates applicable to export and import transactions for each month in a given period.

192
 In 2009, the Republics public external debt as a percentage of exports increased to 68.9% as of
December 31, 2009 from 56.8% as of December 31, 2008. This decrease was attributable to a decrease in export
value following the global financial crisis and the increase in global government securities and program loan
disbursements.

Public external debt decreased to 12.0% of GDP as of December 31, 2010, compared to 14.6% as of
December 31, 2009. Public external debt increased to U.S.$86.1 billion as of December 31, 2010 from
U.S.$80.2 billion as of December 31, 2009. The increase in public debt was contributed to by the issuance of
U.S.$2.0 billion and 60 billion worth of government securities and disbursement of program loans in the
aggregate amount of U.S.$3.209 billion from the World Bank (U.S.$1.704 billion), ADB (U.S.$700 million),
JICA (U.S.$500 million), and France (U.S.$300 million) and disbursement of some project loans. The increase in
the Republics public external debt, which was partially offset by principal debt repayments, was primarily due to
the depreciation of the U.S. dollar against other currencies in which a portion of the Republics external debt is
denominated, particularly the Japanese yen and the Euro. As of December 31, 2010, Japanese yen-denominated
debt accounted for approximately 38.0% of the Republics total outstanding external debt and Euro-denominated
debt accounted for approximately 8.0%.

Public external debt decreased to 10.5% of GDP as of December 31, 2011, compared to 12.0% as of
December 31, 2010. Public external debt increased to U.S.$89.4 billion as of December 31, 2011 from
U.S.$86.1 billion as of December 31, 2010. The increase in public external debt in 2011 was attributable to the
issuance of global bonds in the amount of U.S.$2.5 billion, depreciation of the yen against the U.S. dollar which
caused an increase of foreign loans denominated in yen, the issuance of trust certificates (sukuk) in the amount of
U.S.$1 billion and the disbursement of program loans in an aggregate amount of U.S.$1.51 billion from the
World Bank (U.S.$1.01 billion), ADB (U.S.$400 million) and JICA (U.S.$100 million), partially offset by the
maturity of certain other debt.

Public external debt decreased to 10.3% of GDP as of December 31, 2012, compared to 10.5% as of
December 31, 2011. Public external debt increased to U.S.$90.7 billion as of December 31, 2012 from
U.S.$89.4 billion as of December 31, 2011. The increase in public external debt in 2012 was mainly attributable
to the depreciation of the Rupiah against the U.S. dollar, the issuance of global bonds and the disbursement of
program loans of U.S.$1.763 billion from the World Bank (U.S.$903.8 million), ADB (U.S.$600 million), JICA
(U.S.$200 million) and IDB (U.S.$59.2 million).

Public external debt increased to 10.4% of GDP as of December 31, 2013, compared to 10.3% as of
December 31, 2012. Public external debt decreased to U.S.$90.7 billion as of December 31, 2013 from
U.S.$91.0 billion as of December 31, 2012. The decrease in public external debt in 2013 was mainly attributable
to repayment of concessional loans to bilateral creditors. As of October 31, 2014, public external debt was
U.S.$92.4 billion.

Sources of Public External Borrowing

The sources of the Republics public external borrowings are bilateral creditors (which accounted for
U.S.$27 billion, or 29.8%, of the total outstanding public external debt as of December 31, 2013), multilateral
creditors (which accounted for U.S.$23.6 billion, or 26.0%, of the total outstanding public external debt as of
December 31, 2013), export agency creditors and commercial creditors (which accounted for U.S.$40 billion, or
44.2%, of the total outstanding public external debt as of December 31, 2013), including international
bondholders (which accounted for U.S.$34 billion, or 37.6%, of the total outstanding public external debt as of
December 31, 2013).

As at October 31, 2014, bilateral creditors of the Republic (accounted for U.S.$25 billion, or 27.0%, of the
total outstanding public external debt), multilateral creditors (accounted for U.S.$23 billion, or 24.7%, of the
total outstanding public external debt), export agency creditors and commercial creditors (accounted for
U.S.$45 billion, or 48.3%, of the total outstanding public external debt), including international bondholders
(accounted for U.S.$39 billion, or 42.3%, of the total outstanding public external debt).

See Public Debt Public External Debt of the Republic.

The World Bank and the ADB have been important sources of funds for the Republic, and the Republic has
secured substantial commitments from JBIC in recent years. In 2009, the Republic received disbursements of
loans from the ADB and World Bank in the amounts of U.S.$734 million and U.S.$2,291 million, respectively.

193
In 2010, the Republic received disbursements of loans from the ADB and World Bank in the amounts of
U.S.$965 million and U.S.$2,221 million, respectively. In 2011, the Republic received disbursements of loans
from the ADB and World Bank in the amounts of U.S.$632 million and U.S.$5,726 million, respectively. In
2012, the Republic received disbursements of loans from the ADB and World Bank in the amounts of
U.S.$808.13 million and U.S.$1,179.8 million, respectively.

As of December 31, 2010, the Republics total World Bank and ADB debt outstanding was
U.S.$11.4 billion and U.S.$11.2 billion, respectively. As of September 30, 2011, the Republics total World Bank
and ADB debt outstanding was U.S.$11.4 billion and U.S.$10.8 billion, respectively. The World Bank and ADB
loans have been used to fund development programs in nearly all sectors of the Indonesian economy. Multilateral
lending programs such as those of the World Bank and the ADB are subject to regular compliance reviews.

As of November 30, 2012, the Republics total World Bank and ADB debt outstanding was
U.S.$12.1 billion and U.S.$9.8 billion, respectively.

In July 2009 and November 2010, respectively, the Japanese standby loan facility was used to guarantee the
Samurai issue launched by the Republic. In 2010, the Republic drew down the following program loans:
U.S.$1,704 million from the World Bank, U.S.$700 million from ADB, U.S.$505 million from JBIC and
U.S.$300 million from France. The Republic also used the Japanese standby loan facility to guarantee a Samuari
issue by the Republic in November 2010.

In 2011, the Republic drew down the following program loans: U.S.$1,010 million from the World Bank,
U.S.$400 million from ADB and U.S.$100 million from JBIC, respectively.

In 2012, the Republic drew down the following program loans: U.S.$903.8 million from the World Bank
and U.S.$600 million from ADB.

In 2013, the Republics drew down the following program loans: U.S.$800 million from the World Bank,
U.S.$400 million from ADB and U.S.$352 million from JICA (Japan).

As of November 7, 2014, the Republic had drawn program loans of U.S.$773.84 million from the World
Bank and U.S.$101 million from France. Starting in 2012, the Republic established new contingency facilities
with ADB, the World Bank, JBIC, and the Australian government for values of U.S.$500 million, U.S.$2 billion,
U.S.$1.5 billion, and U.S.$1 billion respectively. As of June 30, 2014 the Republic has not drawn down on any of
these contingency facilities. The JBIC, World Bank and ADB facilities have been extended until June 2015,
while Australian government facilities have been authorized to be extended until June 2015.

In October and November 2011, the Republic entered into new loans with the World Bank and ADB of
U.S.$790 million and U.S.$400 million, respectively. The purpose of the new loans is to further support reforms
in improving the investment climate, developing infrastructure, strengthening public financial management and
enhancing poverty alleviation and service delivery efforts. In 2013, the Republic entered into new commitment
loans with the World Bank, ADB and JICA of U.S.$519.9 million, U.S.$49.5 million, and JP 18,557 million
respectively. The purpose of the new loans is to further support the reforms started in 2011 with respect to
improving the investment climate, developing the infrastructure and energy sector, strengthening public financial
management and enhancing poverty alleviation and service delivery efforts.

In 2012 and 2013, four development partners (World Bank, ADB, Japan and Australia) committed to
provide funds for standby loans to the Republic to enhance the Governments crisis preparedness to address the
potential impact of ongoing volatility in financial markets. In 2012, the Republic secured standby loan
commitments from the World Bank, ADB, and Japan of U.S.$2,000 million, U.S.$500 million and
JP 120,000 million respectively. On July 9, 2013, the Republic entered into an agreement with Australia for a
commitment of AUD 1000 million.

The Government has expanded its sources of external financing by accessing the international capital
markets (including the Islamic financial markets) by issuing securities as follows:
March 2004, U.S.$1 billion in 6.75% bonds due 2014 (this represented the first time Indonesia
accessed the international capital markets for financing since the onset of the Asian financial crisis);
April 2005, U.S.$1 billion in 7.25% bonds due 2015;
October 2005, U.S.$900 million in 7.50% bonds due 2016 and U.S.$600 million in 8.50% bonds due
2035;

194
 March 2006, U.S.$1 billion in 6.875% bonds due 2017 and a further U.S.$1 billion issuance of 8.50%
bonds due 2035;
February 2007, U.S.$1.5 billion of 6.625% bonds due 2037;
January 2008, U.S.$1 billion of 6.875% bonds due 2018 and U.S.$1 billion of 7.75% bonds due 2038;
June 2008, U.S.$0.3 billion of 6.75% bonds due 2014, U.S.$0.9 billion of 6.875% bonds due 2018 and
U.S.$1 billion of 7.75% bonds due 2038;
March 2009, U.S.$1 billion of 10.375% bonds due 2014 and U.S.$2 billion of 11.625% bonds due
2019;
April 2009, U.S.$650 million of 8.80% Islamic trust certificates (sukuk) due 2014;
July 2009, JP35 billion of 2.73% Samurai bonds due 2019;
January 2010, U.S.$2 billion of 5.875% Notes due 2020;
November 2010, JP60 billion of 1.60% Samurai bonds due 2020;
April 2011, U.S.$2.5 billion of 4.875% bonds due 2021;
November 2011, U.S.$1 billion of 4.00% Islamic trust certificates (sukuk) due 2018;
January 2012, U.S.$1.75 billion of 5.25% bonds due 2042; April 2012, U.S.$2 billion of 3.75% bonds
due 2022 and U.S.$500 million of 5.25% bonds due 2042 (reopening);
November 2012, U.S.$1 billion of 3.3% Islamic trust certificates (sukuk) due 2022;
November 2012, JP60 billion of 1.13% Samurai bonds due 2022;
April 2013, U.S.$1,500,000,000 3.375% Notes due 2023 and U.S.$1,500,000,000 4.625% Notes due
2043;
July 2013, U.S.$1,000,000,000 5.375% Notes due 2023;
September 2013, U.S.$1,500,000,000 6.135% Islamic trust certificates (sukuk) due 2019;
January 2014, U.S.$2,000,000,000 5.875% bonds due 2024 and U.S$2,000,000,000 billion
6.750%bonds due 2044;
July 2014, EUR1,000,000,000 2.875% bonds due 2021; and
August 2014, U.S.$1,500,000,000 4.35% Islamic trust certificates (sukuk) due 2024.

In January 2007, Indonesia terminated the CGI, a group of donor countries and multilateral institutions, to
increase the Republics autonomy in negotiating bilateral assistance on more favorable terms. Indonesia believes
that the former members of the CGI who were its primary creditors (the ADB, World Bank and JBIC) will
continue to seek to provide loans to Indonesia. To that end, the Republic has engaged in bilateral dialogue with
the ADB, World Bank and JBIC regarding its funding needs and developed a plan for obtaining future financing
directly from these institutions in the areas formerly serviced by the CGI.

The Paris Club, an informal intergovernmental forum of official creditors for negotiating debt
restructurings, played an important role in easing the Republics foreign exchange burden in the wake of the
Asian financial crisis. Between 1998 and 2000, the Republic twice rescheduled certain payments of its Paris Club
foreign debt. Pursuant to an April 2002 agreement, Paris Club debt payments of principal and interest of
approximately U.S.$5.4 billion that were due to certain of the Republics creditors between April 2002 and
December 2003 were rescheduled. As a result of the Governments decision to exit the IMF program in 2003,
Indonesia is no longer eligible for debt rescheduling through the Paris Club and the Republic is required to repay
its outstanding loans according to their repayment schedules.

In 2009, the Republic repaid U.S.$1.8 billion, U.S.$0.9 billion in 2010 and U.S.$0.9 billion in 2011, of the
Paris Club debt. The Republic repaid U.S.$0.9 billion and U.S.$1.0 billion in 2012 and 2013, respectively of its
Paris Club debt. As of October 31, 2014, Indonesias remaining Paris Club debt amounted to U.S.$6.89 billion.

195
 The following table sets forth amounts of international development assistance received by the Republic as
of the date indicated.

International Development Assistance(1)(2)

As of
As of December 31, October 31,
2009 2010 2011 2012 2013 2014
(in millions of U.S. dollars)
Bilateral loans . . . . . . . . . . . . . . . . . . . . . . . . 33,715.4 35,613.7 35,722.4 32,186.2 27,016.6 24,983.4
Multilateral loans:
International Monetary Fund . . . . . . . . .
International Bank for Reconstruction
and Development . . . . . . . . . . . . . . . . 7,871.1 9,051.9 9,606.4 10,463.4 11,335.6 11,653.9
Asian Development Bank . . . . . . . . . . . 10,885.1 11,148.9 10,798.1 10,379.1 9,387.2 8,438.2
International Development
Association . . . . . . . . . . . . . . . . . . . . 2,231.1 2,314.6 2,273.5 2,208.2 2,097.7 1,936.2
Islamic Development Bank . . . . . . . . . . 314.9 404.9 465.2 526.5 545.1 550.8
Nordic Investment Bank . . . . . . . . . . . . 64.1 50.6 32.5 32.4 27.6 23.4
European Investment Bank . . . . . . . . . . 85.8 77.2 68.2 58.8 48.9 41.1
International Fund for Agricultural
Development . . . . . . . . . . . . . . . . . . . 77.1 80.9 119.5 130.7 137.7 145.1
Multilateral Investment Guarantee
Agency . . . . . . . . . . . . . . . . . . . . . . .
Total multilateral loans . . . . . . . . . . . . . . . . . 21,529.2 23,129.1 23,363.4 23,799.2 23,579.8 22,788.7
Total loans . . . . . . . . . . . . . . . . . . . . . . . . . . 55,244.6 56,062.1 59,085.8 55,985.4 50,596.4 47,772.0

Source: Ministry of Finance

(1) The term international development assistance includes any concessionary loans provided by international financial institutions or
foreign governments, excluding grants.
(2) Foreign currency values of international development assistance have been converted into U.S. dollars at the applicable BI middle
exchange rates as of the respective dates indicated.

The following table sets forth the external public debt of the Republic by currency as of the date indicated.

Outstanding External Public Debt of the Republic by Major Currency

As of December 31, 2013 As of October 31, 2014
In millions of In millions of In millions of In millions of
original currency U.S. dollars(1) original currency U.S. dollars(1)
U.S. dollars . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55,029.4 55,029.4 60,003.6 60,003.6
Japanese yen . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,410,676.7 24,495.2 2,262,926.3 20,683.2
Euros . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,235.5 5,816.6 5,153.9 6,493.4
SDR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,087.0 3,221.3 1,961.4 2,904.4
British pounds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 333.6 535.0 275.2 439.9
Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Multiple Multiple
currencies 2,014.7 Currencies 1,877.6
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N/A 91,112.2 N/A 92,402.2

Source: Bank Indonesia.

(1) Calculated based on the applicable BI middle exchange rates as of the date indicated for each column.

Fluctuations in exchange rates between the U.S. dollar and foreign currencies have affected, and will
continue to affect, the relative composition by currency of the external public debt of the Republic in U.S. dollar
terms. From mid-2007 until the end of December 2010, the U.S. dollar has generally depreciated against the
Japanese yen, thereby increasing the percentage of the Republics public external debt represented by Japanese
yen-denominated debt during this period. From the end of 2010 until the end of 2012, the U.S. dollar has
generally depreciated against the Japanese yen, thereby increasing the percentage of the Republics public
external debt represented by Japanese yen-denominated debt during this period. However, as a result of the U.S.
dollar appreciating against the Japanese yen in 2013, the percentage of the Republics public external debt
represented by Japanese yen-denominated debt has decreased during this period.

196
 As of October 31, 2014, the percentage of the Republics public external debt represented by Japanese yen-
denominated debt was 22.38%.

External Debt of the Central Government

The following table sets forth information on the outstanding external debt of the central Government by
creditor type as of the dates indicated.

Outstanding External Debt of the Central Government by Source(1)

As of
As of December 31, October 31,
2009 2010 2011 2012 2013P 2014
(in millions of U.S. dollars)
Concessional Loans
Multilateral creditors . . . . . . . . . . . . . . . . . . . . . . . . . . 21.5 23.1 23.4 23.8 23.6 22.8
Bilateral creditors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33.7 35.6 35.7 32.2 27.0 25.0
Semi-concessional Loans
Export agency creditors . . . . . . . . . . . . . . . . . . . . . . . . 9.5 8.8 8.1 7.0 6.0 5.5
Leasing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.5 18.6 22.2 28.0 34.1 39.1
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80.2 86.1 89.4 91.0 90.7 92.4

Source: Ministry of Finance

P Preliminary.
(1) Foreign currency values of outstanding external debt have been converted into U.S. dollars at the applicable BI middle exchange rates as
of the respective dates indicated.
(2) Includes bonds issued in international capital markets and commercial bank borrowings.

The central Governments external debt includes both fixed and floating rate obligations. As of
December 31, 2013, 64.6% of the central Governments external debt consisted of fixed rate loans and 35.4%
consisted of floating rate loans. As of December 31, 2014, 59.6% of the central Governments external debt
consisted of fixed rate loans and 40.4% consisted of floating rate loans.

197
 The following table sets forth the external debt service requirements of the central Government for the years
indicated.

External Debt Service Requirements of the Central Government

Principal Interest
Period repayment repayment Total
(in millions of U.S. dollars)
2009 ........................................................... 7,237.4 3,194.3 10,431.6
2010 ........................................................... 5631.5 2,992.2 8,623.6
2011 ........................................................... 5,218.6 2,914.5 8,133.1
2012 ........................................................... 5,316.3 2,938.0 8,254.3
2013 ........................................................... 5,368.8 3,156.6 8,525.3
2014 ........................................................... 5,346.9 987.9 6,334.8
2015 ........................................................... 6,245.9 3,105.8 9,351.6
2016 ........................................................... 6,031.5 3,021.5 9,053.0
2017 ........................................................... 5,673.4 2,779.3 8,452.7
2018 ........................................................... 7,482.2 2,574.5 10,056.7
2019 ........................................................... 8,324.1 2,208.1 10,532.2
2020 ........................................................... 6,764.4 1,881.5 8,646.0
2021 ........................................................... 7,437.2 2,448.0 9,885.2
2022 ........................................................... 6,769.5 1,579.9 8,349.4
2023 ........................................................... 5,352.7 1,415.5 6,768.2
2024 ........................................................... 5,913.0 1,225.3 7,138.3
2025 ........................................................... 2,047.7 1,055.5 3,103.2
2026 ........................................................... 1,745.5 1,017.9 2,763.4
2027 ........................................................... 1,503.9 986.3 2,490.2
2028 ........................................................... 1,235.8 960.7 2,196.6
2029 ........................................................... 1,042.6 940.5 1,983.1
2030 ........................................................... 1,007.6 924.9 1,932.5
2031 ........................................................... 996.7 909.5 1,906.2
2032 ........................................................... 991.5 894.4 1,885.9
2033 ........................................................... 941.8 878.3 1,820.0
2034 ........................................................... 620.4 866.7 1,487.1
2035 ........................................................... 1,968.1 859.1 2,827.2
2036 ........................................................... 250.7 718.0 968.8
2037 ........................................................... 1,671.8 664.2 2,336.0
2038 ........................................................... 2,109.0 534.8 2,643.8
2039 ........................................................... 93.1 455.7 548.7
2040 ........................................................... 82.5 454.7 537.2
2041 ........................................................... 78.8 390.9 469.7
2042 ........................................................... 2,321.6 267.5 2,589.1
2043 ........................................................... 1,560.6 172.7 1,733.3
2044 ........................................................... 2,052.1 69.7 2,121.8
2045 ........................................................... 42.4 1.36 43.7
2046 ........................................................... 30.4 0.6 31.0
2047 ........................................................... 16.3 0.3 16.5
2048 ........................................................... 8.5 0.2 8.6
2049 ........................................................... 4.2 0.1 4.3
2050 ........................................................... 1.9 0.1 1.9
2051 ........................................................... 1.1 0.0 1.1
2052 ........................................................... 0.3 0.0 0.3
2053 ........................................................... 0.2 0.0 0.2
2054 ........................................................... 0.2 0.0 0.2
2055 ........................................................... 0.1 0.0 0.1
Source: Ministry of Finance
Note: Assuming at the exchange rate date of October 31, 2014, U.S.$1 = Rp11,404.

As shown in the table above, the debt service requirement of currently outstanding external debt declined
from 2009 until 2011, but increased in 2012 and 2013, and then declined in 2014.

198
 Fluctuations in exchange rates between the Rupiah and foreign currencies have affected, and will continue
to affect, the debt servicing requirements of the external public debt of the Republic in Rupiah terms. In 2009, the
Rupiah strengthened against the Japanese yen to Rp10,170 per JP100 as of December 31, 2009. In 2010, the
Rupiah depreciated significantly against the Japanese yen to Rp11,028 per JP100 as of December 31, 2010. In
2011, the Rupiah generally depreciated against the Japanese yen to Rp11,680 per JP100 as of December 31,
2011. The Rupiah further depreciated against the Japanese yen in 2012 to Rp11,197 per JP100 as of
December 31, 2012. The Rupiah appreciated against the Japanese yen to Rp10,035 per JP100 as of June 30,
2013, but then depreciated to Rp11,617 per JP100 as of December 31, 2013. The Rupiah appreciated against the
Japanese yen to Rp10,424 per JP100 as of December 31, 2014.

In 2009, the Rupiah generally strengthened against the Euro to Rp13,510 per 1 as of December 31, 2009.
In 2010, the Rupiah appreciated against the Euro to Rp11,956 per 1 as of December 31, 2010. In 2011, the
Rupiah generally appreciated against the Euro to Rp11,739 per 1 as of December 31, 2011. In 2012 the Rupiah
depreciated against the Euro to Rp12,810 per 1 as of December 31, 2012. The Rupiah appreciated against the
Euro in the first quarter of 2013 to Rp12,423 per 1 as of March 31, 2013, but then depreciated through the
second, third and fourth quarters of 2013 to Rp16,821 per 1 as of December 31, 2013. The Rupiah appreciated
against the Euro to Rp15,133 per 1 as of December 31, 2014.

In 2009, the Rupiah appreciated against the U.S. dollar to Rp9,400 per U.S.$1 as of December 31, 2009. In
2010, the Rupiah appreciated against the U.S. dollar to Rp8,991 per U.S.$1 as of December 31, 2010. In 2011,
the Rupiah generally depreciated against the U.S. dollar to Rp9,068 per U.S.$1 as of December 31, 2011. The
Rupiah further depreciated against the U.S. dollar in 2012 to Rp9,670 per U.S.$1 as of December 31, 2012 and
continued to depreciate against the U.S. dollar in 2013 to Rp12,189 per U.S.$1 as of December 31, 2013. The
Rupiah further depreciated against the U.S. dollar in 2014 to Rp12,440 per U.S.$1 as of December 31, 2014. See
Foreign Exchange and Reserves Exchange Rates.

External Debt of Bank Indonesia

In line with the Central Bank Law, Bank Indonesia has the ability to incur external debt primarily to meet
balance of payments needs and maintain adequate foreign exchange reserves. As of December 31, 2010, the total
outstanding multilateral and commercial external debt of Bank Indonesia was U.S.$3.6 billion, or approximately
4.0% of the Republics total public external debt. As of December 31, 2011, the total outstanding multilateral and
commercial external debt of Bank Indonesia was U.S.$3.5 billion, comprising U.S.$3.0 billion of multilateral
debt and U.S.$0.5 billion of commercial debt. As of December 31, 2012, the total outstanding multilateral and
commercial external debt of Bank Indonesia was U.S.$3.4 billion, or approximately 2.7% of the Republics total
public external debt. Total external debt of Bank Indonesia from all sources was U.S.$9.9 billion as of
December 31, 2012. As of December 31, 2013, Bank Indonesias outstanding multilateral and commercial debt
was U.S.$3.3 billion. Total external debt of Bank Indonesia from all sources was U.S.$9.3 billion as of
December 31, 2013, or approximately 7.5% of the Republics total public external debt.

As of September 30, 2014, the outstanding amount of multilateral and commercial debt was U.S.$3.2
billion, consisting of U.S.$2.9 billion of multilateral debt and U.S.$0.2 billion of commercial debt. Total external
debt of Bank Indonesia from all sources was U.S.$7.5 billion as of September 30, 2014, or approximately 5.7%
of the Republics total public external debt.

The following table sets forth the outstanding multilateral and commercial external debt of Bank Indonesia
by type of credit as of the dates indicated.

Outstanding Multilateral and Commercial External Debt of Bank Indonesia

As of December 31,
2009 2010 2011 2012 2013P 2014P
(in millions of U.S. dollars(1))
Multilateral . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,093 3,050 3,031 3,053 3,050 2,946
Commercial(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 606 576 490 354 244 236
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,699 3,626 3,521 3,407 3,294 3,182

Source: Bank Indonesia

P Preliminary.
(1) Foreign currency values of outstanding external debt have been converted into U.S. dollars at the applicable BI middle exchange rates as
of the respective dates indicated.
(2) Includes bonds issued in international capital markets and commercial bank borrowings but excludes SBI owned by non-residents,
currencies and deposits and other liabilities.

199
 The following table sets forth the external debt service requirements of Bank Indonesia for the years
indicated.

External Debt Service Requirements of Bank Indonesia (2008 2018)(1)

Principal Interest
Period repayment repayment Total
(in millions of U.S. dollars)
2009(2) ............................................................ 68.0 12.2 80.2
2010(2) ............................................................ 48.5 8.0 56.5
2011(2) ............................................................ 93.8 15.9 109.6
2012(2) ............................................................ 128.1 9.7 137.8
2013(2) ............................................................ 96.7 5.1 101.8
2014(3) ............................................................ 15.9 4.3 20.2
2015(3) ............................................................ 33.3 6.4 39.7
2016(3) ............................................................ 48.4 3.0 51.4
2017(3) ............................................................ 48.4 2.4 50.8
2018(3) ............................................................ 48.4 1.0 49.4
Source: Bank Indonesia
(1) The table does not include amounts payable after 2015 in respect of multilateral financing due in 2025 or in respect of other commercial
debt maturing after 2015.
(2) Calculated based on the transaction exchange rate, which is a spot rate used upon settlement.
(3) Projected, based on debt outstanding and exchange rates as of September 30, 2014.

In order to strengthen its international reserves and support its balance of payments, the Republic has
entered into a swap arrangement with ASEAN as well as bilateral swap arrangements with other countries. Bank
Indonesia has signed BSAs with Japan, China and the Republic of Korea. The Government expects that these
arrangements will contribute to greater financial stability and economic growth in East Asia, including Indonesia.
See Foreign Exchange and Reserves Regional Swap Arrangements of the Republic.

In order to maintain its balance of payments and short-term liquidity, the Republic has entered into an
ASEAN Swap Arrangement (ASA) with the ASEAN member states as well as a Bilateral Swap Agreement
(BSA) with Japan. Aside from the ASA and BSA, Indonesia entered into the Chiang Mai Initiative
Multilateralization (CMIM) Agreement, an ASEAN+3 reserve pooling arrangement with a total size of
U.S.$120 billion which the parties have agreed to double to U.S.$240 billion. Under the ASA and BSAs and
CMIM Agreements, The equivalent of a total of U.S.$46.1 billion was available to the Republic as of July 17,
2014. See Foreign Exchange and Reserves Regional Swap Arrangements of the Republic.

Ratings History
The following table sets forth changes in the credit ratings of the Republic since 2008.

Credit Rating of the Republic(1)

Date Rating agency Credit rating
April 28, 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Standard & Poors BB+
May 2, 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Standard & Poors BB+
April 8, 2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Standard & Poors BB+
March 12, 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Standard & Poors BB
October 23, 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Standard & Poors BB-
January 18, 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Moodys Baa3
January 17, 2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Moodys Ba1
September 16, 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Moodys Ba2
November 13, 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Fitch BBB-
November 15, 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Fitch BBB-
November 22, 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Fitch BBB-
December 15, 2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Fitch BBB-
February 24, 2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Fitch BB+
January 25, 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Fitch BB+
Source: Bloomberg
(1) Ratings relate to outstanding bonds and sukuk.

200
 On September 16, 2009, Moodys Investors Service, Inc. (Moodys) upgraded Indonesias foreign and
local currency debt ratings to Ba2 from Ba3 with a stable outlook. The upgrade reflected the Indonesian
economys relative resilience in light of the global recession as well as its healthy medium-term growth
prospects, and was stated to be prompted by an improving credit profile founded on Indonesias ongoing policy
prudence, structural reforms and appropriate debt management. Moodys also noted that Indonesias
macroeconomic management was improving and its growth dynamic is better positioned to face medium-term
global uncertainties than many of its Ba-rated peers as well as most regional economies. In addition, Moodys
stated Indonesias general government debt and private external debt were lower than the medians of its peers.

On October 23, 2009, Standard & Poors revised Indonesias credit outlook to positive from stable and
affirmed its long-term foreign currency rating at BB-. This revision reflects Standard & Poors stated expectation
that a stronger political environment will give rise to more effective policy setting to address structural problems,
while debt reduction and underlying fiscal prudence will remain key elements of macroeconomic policy.

On January 25, 2010, Fitch upgraded Indonesias long-term foreign and local-currency credit ratings to BB+
from BB, citing the economys resilience to the global crisis and improved finances. Fitch also stated that the
outlook on both ratings is stable and the rating action reflects Indonesias relative resilience to the severe global
financial crisis of 2008-2009, which has been underpinned by continued improvements in the countrys public
finances, a fundamental sovereign rating strength, and a material easing of external financing constraints.

On March 12, 2010, Standard & Poors lifted Indonesias long-term foreign-currency rating one level to BB
from BB-. Standard & Poors stated that the ratings upgrade on Indonesia reflected improving debt metrics and
growing foreign currency reserves with continued cautious fiscal management. The positive outlook on the long-
term foreign currency rating reflected Standard & Poors expectations that the broader economic and fiscal
reform agenda would proceed apace once the current political distractions subsided.

On June 21, 2010, Moodys raised the outlook on Indonesias Ba2 local- and foreign-currency sovereign
ratings from stable to positive. Moodys cited that the core of Indonesias growth story is driven by a large
domestic market that is appropriately managed by a well-tested economic policy framework.

On January 17, 2011, Moodys upgraded Indonesias sovereign credit rating from Ba2 to Ba1. Moodys
stated that they had upgraded the sovereign credit rating as the momentum in the economy is expected to be
sustained by steady domestic demand, a reasonable pace and sequencing of policy and structural reforms, and
rising foreign direct investment. Moodys also viewed Indonesias debt position and reserve adequacy as
remaining on an improving trajectory relative to most of its rating peers.

On February 24, 2011, Fitch raised its outlook on Indonesia from stable to positive. Fitch stated that the
positive outlook reflects its view that Indonesias favorable macroeconomic prospects are likely to see the credit
profile strengthen further over the next 12 to 18 months, despite near-term risks from inflation and potentially
volatile capital flows.

On April 8, 2011, Standard & Poors raised Indonesias long-term foreign-currency sovereign credit and
debt ratings to BB+ from BB. Standard & Poors stated that the ratings upgrade reflected continuing
improvements in the Governments balance sheet and external liquidity, against a backdrop of resilient economic
performance and cautious fiscal management.

On December 15, 2011, Fitch upgraded Indonesias long-term foreign-currency sovereign credit and debt
ratings to BBB- from BB+, the highest level since the Asian financial crisis. Fitch stated that the ratings upgrade
reflected Indonesias strong and resilient economic growth, low and declining public-debt ratios, strengthened
external liquidity and a prudent overall macro policy framework. Fitch also stated that the outlook on the rating is
stable.

On January 18, 2012, Moodys upgraded Indonesias long-term foreign and local currency bond rating from
Ba1 to Baa3. Moodys stated that the ratings outlook is stable and the rating upgrade reflected the anticipation
that the Governments financial metrics will remain in line with Baa peers, Indonesias strong and resilient
economic growth and healthier banking system, the presence of policy buffers and tools that address financial
vulnerabilities, Indonesias healthy external payments position and continued policy flexibility and the adept
management of economic risks and global financial market volatility.

On May 2, 2013, Standard & Poors revised its outlook on the Republic to stable from positive. At the same
time, it affirmed the Republics BB+ long-term and B short-term sovereign credit ratings and axBBB+/axA-2

201
ASEAN regional scale rating on Indonesia. Standard & Poors stated that the outlook revision to stable reflected the
stalling of reform momentum in Indonesia and a weaker external profile which had diminished the potential for a
rating upgrade over the next 12 months.

On April 28, 2014, Standard & Poors affirmed the Republics ratings outlook as stable. At the same time, it
confirmed the Republics sovereign credit rating as BB+. This rating reflected the favorable fiscal and debt
metrics and moderately strong growth prospects as against moderately weak institution, low GDP per capita and
external vulnerability of the Republic.

On November 13, 2014, Fitch affirmed its sovereign credit rating of the Republic at BBB-/stable outlook
(investment grade). The affirmation reflected the authorities consistency in responding to external and domestic
pressure, economic growth, improving current account deficit, as well as strong fiscal balance and a well-
capitalized banking sector.

External Debt of State-Owned-Enterprises

The following table sets forth the outstanding external debt of state-owned-enterprises as of the dates
indicated.

Outstanding Direct External Debt of State-Owned-Enterprises(1)

As of December 31,
2009 2010 2011 2012 2013P 2014P(2)
(1)
(in millions of U.S. dollars )
Financial institutions:
Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,720 1,385 2,349 4,036 3,103 3,528
Non-bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 143 100 765 957 797 1,599
Total financial institutions . . . . . . . . . . . . . . . . . . . 1,863 1,485 3,114 4,993 3,900 5,127
Non-financial institutions . . . . . . . . . . . . . . . . . . . . . . . 6,299 7,049 12,283 14,789 20,806 24,118
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,162 8,534 15,397 19,782 24,706 29,245

Source: Bank Indonesia

P Preliminary.
(1) Foreign currency values of outstanding direct external debt have been converted into U.S. dollars at the applicable BI middle exchange
rates as of the respective dates indicated.
(2) As of October 31, 2014.

External debts of state-owned-enterprises are not direct obligations of the Republic unless such debts are
explicitly guaranteed by the Republic. The Republics general policy is not to guarantee external debt of
state-owned-enterprises. However, to encourage investment in infrastructure projects, the Republic has recently
adopted a policy of providing credit support with respect to particular projects. See Infrastructure Development
and Contingent Liabilities. As of December 31, 2012, the total outstanding external debt of state-
owned-enterprises was U.S.$19.8 billion, U.S.$14.8 billion of which was debt of non-financial institutions.
Non-financial institutions, primarily in the oil and gas sector, accounted for the largest portion of the outstanding
state-owned-enterprises external debt. As of December 31, 2013, the total outstanding external debt of
state-owned-enterprises was U.S.$24.7 billion, an increase of 24.9% from the total outstanding external debt of
state-owned-enterprises at the end of 2012. The outstanding state-owned-enterprises external debt was
U.S.$29.2 billion at December 31, 2014.

Domestic Debt of the Central Government

The following table sets forth the outstanding domestic debt of the Government as of the dates indicated.

Domestic Debt of the Central Government

As of
As of December 31, November 30,
2009 2010 2011 2012 2013 2014

Total domestic public debt, in trillions of

Rupiah(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 836 902 993 1,096 1,264 1,489
Source: Ministry of Finance
(1) Excludes SBI, which are obligations of Bank Indonesia and not of the Government. See Financial System Bank Indonesia.

202
 Prior to 1998, all of the central Governments debt was external and the Governments budget policy only
permitted foreign debt and foreign aid for financing the budget deficit. In 1998, however, the Government began
issuing domestic debt to finance the restructuring and recapitalization of Indonesias banks undertaken by the
Government following the Asian financial crisis. Currently all of the Governments domestic debt consists of
securities. These securities include treasury bonds, which have maturities greater than one year and include fixed
and floating rate bonds and zero coupon securities and sukuk; treasury bills, which have maturities of one year or
less and are issued on a zero coupon basis; and promissory notes to Bank Indonesia, which may be tradable or
non-tradable. As of December 31, 2010, the central Governments tradable domestic debt consisted of 22.3%
floating rate debt and 77.7% fixed rate debt. As of December 31, 2011, the central Governments tradable
domestic debt consisted of 18.7% floating rate debt and 81.3% fixed rate debt. As of December 31, 2012, the
central Governments tradable domestic debt consisted of 15.0% floating rate debt and 85.0% fixed rate debt and
as of December 31, 2013, the central Governments tradable domestic debt consisted of 12.3% floating rate debt
and 87.7% fixed rate debt. As of November 30, 2014, the central Governments tradable domestic debt consisted
of 10.05% floating rate debt and 89.95% fixed rate debt. The Government prefers to reduce the portion of its debt
which is floating rate in order to protect against rising interest rates.

Since 2008, the proportion of tradable domestic government bonds held by non-banks has increased
significantly, from 46.4% in 2008, to 52.4% in 2009, to 63.4% in 2010, to 62.3% in 2011 to 63.1% in 2012,
before decreasing to 61.8% in 2013 and increasing again to 65.5% as at December 31, 2014. Accordingly, the
proportion of such debt held by banks declined from 49.2% in 2008, to 43.7% in 2009 and to 33.9% in 2010. The
proportion of such debt held by banks increased to 36.6% and 36.7% in 2011 and in 2012, before decreasing to
33.7% in 2013. As at December 31, 2014 the proportion of debt held by banks was 31%. In addition, the
proportion of tradable domestic government bonds held by offshore residents increased from approximately
18.6% in 2009 to approximately 30.5% in 2010 and to approximately 30.8% in 2011. The proportion of offshore
ownership then increased to 33.0% in 2012, to 32.5% in 2013 and to 38.1% as of December 31, 2014.

203
Domestic Debt Service Requirements of the Central Government
The following table sets forth the debt service requirements for all public domestic debt of the Government
for the years indicated.

Direct Domestic Debt Service Requirements of the Central Government(1)

Principal
repayment and Interest
Period redemption repayment Total

2009 .......................................................... 49.1 62.7 111.8

2010 .......................................................... 76.5 60.2 136.7
2011 .......................................................... 87.4 65.6 153.0
2012 .......................................................... 91.2 62.6 153.8
2013 .......................................................... 103.1 98.1 201.2
2014 .......................................................... 173.5 117.1 290.6
2015 .......................................................... 121.0 96.3 217.4
2016 .......................................................... 87.5 90.8 178.3
2017 .......................................................... 94.9 84.3 179.1
2018 .......................................................... 65.5 79.0 144.5
2019 .......................................................... 95.6 47.2 169.8
2020 .......................................................... 62.1 69.2 131.3
2021 .......................................................... 51.9 64.7 116.6
2022 .......................................................... 74.4 59.7 134.1
2023 .......................................................... 68.5 55.4 124.0
2024 .......................................................... 120.6 48.7 169.3
2025 .......................................................... 43.3 43.2 86.5
2026 .......................................................... 22.0 40.2 62.2
2027 .......................................................... 47.8 37.5 85.2
2028 .......................................................... 53.1 33.0 86.1
2029 .......................................................... 74.5 27.8 102.3
2030 .......................................................... 29.1 24.5 53.6
2031 .......................................................... 30.9 21.9 52.8
2032 .......................................................... 47.0 17.6 64.6
2033 .......................................................... 52.5 14.2 66.7
2034 .......................................................... 70.2 9.9 80.1
2035 .......................................................... 5.7 7.2 12.8
2036 .......................................................... 10.3 7.0 17.3
2037 .......................................................... 23.4 6.1 29.6
2038 .......................................................... 23.2 5.5 28.7
2039 .......................................................... 8.4 3.8 12.2
2040 .......................................................... 10.2 3.8 14.1
2041 .......................................................... 23.7 3.1 26.8
2042 .......................................................... 23.2 2.1 25.3
2043 .......................................................... 22.3 1.3 23.6
2044 .......................................................... 11.3 0.5 11.7
Source: Ministry of Finance
(1) Note: Assuming at the exchange rate date September 30, 2014, U.S.$1 = Rp11,770.

Domestic Debt Management by the Central Government

Since 2000, the Government has sought to reduce the cost of servicing its domestic debt securities and to
manage risks related to such securities such as refinancing risk and interest rate risk. To address these risks, the
Government has refinanced maturing bonds with new bonds having appropriately structured maturities,
conducted bond exchange offers and engaged in open market repurchases. Between 2000 and 2003, the
Government conducted four exchange offers through which it exchanged portions of its portfolio of debt
securities. These exchange offers were conducted to extend the average maturity of its outstanding debt securities
and to increase liquidity of the securities in the secondary market.

Beginning in 2002, the Government initiated a buy-back program for its domestic debt pursuant to which it
repurchases domestic debt securities with proceeds from the liquidation of assets owned or held by IBRA,

204
proceeds from privatization and divestments of state-owned-enterprises, swaps of IBRAs loan assets conducted
through asset-bond swap programs and funds appropriated in the Republics budget. From 2002 to 2010, bonds
amounting to Rp32.2 trillion were repurchased pursuant to the buy-back program. The Government repurchased
government bonds amounting to Rp2.0 trillion in April 2008, Rp0.04 trillion in October 2008, Rp0.3 trillion in
November 2008, Rp3.5 trillion in 2011, Rp1.1 trillion in 2012 and Rp1.6 trillion during the six months ended
June 28, 2013.

On November 7, 2008, the Minister of Finance issued Minister of Finance Regulation

No. 170/PMK.08/2008 governing the regulation, sale and issuance of debt securities in the primary market and
their repurchase in the secondary market. The regulation aims to stabilize the government debt securities market,
manage the government debt securities portfolio, and meet the Governments securities issuance target as
provided for under the government budget. This Regulation was last amended by Minister of Finance Regulation
No. 126/PMK.08/2011 which aims at stabilizing the sovereign debt markets through direct transactions and
optimizing the deposit surplus in the state treasury. On May 28, 2014 the Minister of Finance issued Minister of
Finance Regulation No.95/PMK.08/2014 on direct Transaction of Sovereign Debt Securities that revoked both
Minister of Finance Regulation No. 170/PMK.08/2008 and Minister of Finance Regulation
No. 126/PMK.08/2011. This new regulation aims to synchronize the indicators used in direct transactions of
sovereign debt securities from previously yield increase to index indicators for the purpose of stabilizing the
sovereign debt market.

Under Law No. 24 of 2002 on Government Debt Securities (the Government Debt Securities Law), the
issuance of debt securities by the Republic requires prior approval of the DPR. According to the Government
Debt Securities Law, the DPR approves net additional debt that can be raised by the Government during each
fiscal year. This provides the Government with flexibility to issue and buy back government bonds in any
amount, as long as the net additional debt does not exceed the level approved by the DPR. Approval by the DPR
is granted when the DPR ratifies the state budget every year. The Government Debt Securities Law also
establishes a standing appropriation, which ensures that all payments of principal and interest for both new, if
approved by the DPR, and certain existing debt securities of the Government are provided for without additional
legislative action. The Government Debt Securities Law also provides the legal basis for the Governments
issuance of debt securities and its development of a government bond market. In addition, several regulations
have been enacted under the Government Debt Securities Law, including regulations on government securities,
information and publicity. The Ministry of Finance and Bank Indonesia have also issued a number of decrees to
implement the goals of the Government Debt Securities Law and to encourage the development of primary and
secondary markets in domestic government debt securities.

In January 2009, the Government resumed bond auctions to finance its projected budget deficit for that year,
despite interest rates being higher than before the global financial crisis of 2008. In mid-2009, following recovery
of the sovereign bond market, interest rates decreased and reduced the cost of domestic issuance of bonds by the
Government. See Recent Developments Economic Recession in Developed Markets and Government
Responses.

In March 2009, the Government purchased Rp8.5 trillion of government bonds. In addition, in 2009,
through its debt switching program, the Government exchanged Rp2.9 trillion of bonds maturing between 2009
and 2013 for bonds maturing in 2016 and 2024.

The Government conducted its first direct government securities market transaction through its dealing
room in December 2009, purchasing Rp10 billion of an illiquid series of government securities. In 2010, the
Government successfully purchased Rp3.2 trillion of total government securities. The transaction was conducted
to promote efficiency in the portfolio management of government securities through direct repurchase operations
via the dealing room and to increase liquidity in the secondary market.

In 2010, through its debt switching program, the Government exchanged Rp2.6 trillion of bonds maturing
between 2011 and 2018, thereby further reducing its refinancing risk.

In January, May and June of 2011, the Government, through its debt switching program, exchanged
Rp0.6 trillion of bonds maturing between 2011 and 2015 for bonds maturing in 2026.

The Government conducted further debt switching programs in June, July, November and December of
2012 and exchanged Rp11.9 billion of bonds maturing between 2012 and 2017 for bonds maturing in 2027, 2028
and 2032. In 2013, the Government exchanged Rp1.98 billion of bonds maturing between 2013 to 2017 years for

205
bonds maturing between 2018 to 2022. As of December 31, 2014, the Government had undertaken four debt
switching programs resulting in the exchange of Rp5.94 trillion of bonds maturing between 2014 and 2019 with
bonds maturing between 2019 and 2034.

Development of the Secondary Market for Domestic Securities of the Government

The following table sets forth the average daily trading volume in the domestic government debt securities
market.

Average Daily Trading of Domestic Government Debt Securities

Year ended December 31,

2009 2010 2011 2012 2013 2014

Average daily trading volume (in billions of Rupiah) . . . . . . . 3,421 4,963 7,671 9,389 12,016 17,393
Average daily number of trades . . . . . . . . . . . . . . . . . . . . . . . . 156 194 295 412 407 392
Source: Ministry of Finance

To stimulate development of the secondary domestic government debt securities market, since 2002 the
Government has: (i) supported the development of the Inter-Dealer Market Association to facilitate a market-
based price-discovery mechanism, (ii) encouraged the development of a repo market for securities lending
activities, by implementation of the Master Repo Agreement to enhance market liquidity, (iii) created a
benchmark yield curve through regular issuances, (iv) implemented government securities buy-back (including
debt-switching) programs, (v) enhanced the efficiency and reliability of securities clearing, settlement and
registry operations and (vi) taken steps to develop a transparent and efficient regulatory framework.

These actions have resulted in an increase in the volume and number of trades in the domestic government
debt securities market. Compared to the average for 2008, the average daily trading volume of government debt
securities for 2009 decreased by 19.2%. This decrease resulted from the relief of the selling pressure on
government securities which existed in 2008. The average daily trading volume of government-issued domestic
debt securities increased by 54.6% in 2011, 22.4% in 2012, 28.0% in 2013 and 44.7% in 2014. This increase
resulted from large capital inflow to the domestic market and sound fundamental economics.

Government debt securities issued domestically in 1998 and initially held by the banks were recapitalized in
the wake of the Asian financial crisis. As a result of the Governments efforts since December 2000 to develop a
secondary domestic market for government debt securities, non-bank ownership of tradable government debt
securities has increased significantly from 11.4% of the total outstanding amount in December 2002 to 46.4% in
December 2008. As of December 31, 2011, non-bank ownership accounted for 62.3% of total domestic tradable
government debt securities. Non-bank ownership accounted for 62.3%, 63.1%, 61.8% and 65.5% of total
domestic tradeable government debt securities as of December 31, 2011, 2012, 2013 and 2014 respectively.
Foreign ownership of tradable government debt securities has also increased significantly, from 0.5% of the total
outstanding amount as of December 31, 2002 to 16.7% as of December 31, 2008, to 30.5% as of December 31,
2010, to 30.8% as of December 31, 2011, to 33% as of December 31, 2012 to 32.5% as of December 31, 2013
and to 38.1% as of December 31, 2014.

In March 2007, the Government implemented rules under which only firms meeting specific criteria are
eligible to deal in the initial offering of benchmark government securities with the goal of promoting the
domestic sale and liquidity of government securities. Under the new framework, dealers are required to quote bid
and ask prices, with these quotations required to fall within a certain maximum spread. In line with the policy of
promoting the trading of government securities and increasing the types of instruments offered to promote
investor demand, cost efficiency and market development, the Government newly issued 30-year coupon bonds,
zero-coupon bonds and treasury bills in 2007 and, in April 2008, began to issue variable rate bonds. In May
2007, all domestic government securities became eligible for trading on stock exchanges. In April 2008, the
Government adopted a regulation changing the tax treatment of the discount on treasury bills. As a result of this
new regulation, the discount amount is taxed at the time the treasury bill is sold or redeemed by the initial
investor, rather than taxed as a capital gain when the treasury bill is originally issued and purchased by the initial
investor as previously treated.

Additionally, in May 2008, Law No. 19 of 2008 on Sovereign Sukuk (Surat Berharga Syariah Negara) was
enacted. Under this new law, the Government is permitted to issue Sharia-compliant commercial paper or sukuk.

206
In August 2008, the Government issued its inaugural domestic sukuk in an aggregate amount of Rp4.7 trillion,
namely the Series IFR0001, consisting of Rp2.71 trillion of 11.80% sukuk due August 15, 2015 and IFR0002,
consisting of Rp2.0 trillion of 11.95% sukuk due August 15, 2018. On February 25, 2009, the Government issued
its inaugural domestic retail sukuk series SR001, with an aggregate amount of Rp5.66 trillion and three-year
tenor.

On May 7, 2009 the Government, through a private placement issuance to the Ministry of Religious Affairs,
issued Rp1.5 trillion sukuk ijara al khadamat, the series SDH12010A sukuk. The non-tradable sukuk was
followed by other issuances of SDH12010B on June 24, 2009, and SDH12010C to an amount of Rp1.19 trillion.
Furthermore, in 2009, the Government issued its inaugural domestic sukuk through auction, namely, the series
IFR003 and IFR004 in a total amount of Rp1.28 trillion.

In 2010, the Government issued ten series of Rupiah denominated sovereign sukuk. On February 10, 2010,
the second domestic retail sukuk SR002 with three-year tenor, was issued successfully to the amount of
Rp8.03 trillion at 8.7%. Subsequently, the Government issued four series of sukuk ijarah al khadamat through
private placement to the Ministry of Religious Affairs in an aggregate amount of Rp12.78 trillion and five series
of sukuk ijarah sales and lease back through auction (one re-opening and four new series) in an aggregate
amount of Rp6.15 trillion.

On February 23, 2011, the Government issued the third domestic retail sukuk series SR003, with an
aggregate amount of Rp7.34 trillion at 8.15% and three-year tenor. The Government also issued three series of
non-tradable sukuk through private placement to the Ministry of Religious Affairs in an aggregate amount of
Rp11 trillion, consisting three-year series of the series of SDHI2014D, in the amount of Rp6 trillion,
SDHI2021A, due April 11, 2021 and SDHI2021B, due October 17, 2021 in the amount of Rp2 trillion and
Rp3 trillion, respectively. Subsequently, the Government issued three series of sukuk ijarah sale and lease back
through auction, (two re-opening and one new series) in an aggregate amount of Rp4.61 trillion.

In order to develop the Islamic financial market, and particularly to support liquidity management of Islamic
banking in Indonesia through investment instrument diversification, the Government issued its inaugural Islamic
T-bills on August 4, 2011, namely, the series SPN-S03022012 in a total amount of Rp570 billion. The SPN-S
was followed by other issuances, including the series SPN-S24022012 on August 25, 2011 in a total amount of
Rp330 billion, and SPN-SI2042012 on October 13, 2011 in a total amount of Rp420 billion. All the SPN-S series
have a six-month maturity.

In March 2011, the Indonesian Finance Minister announced that the Government would begin using
three-month treasury bills or SPNs as the new reference rate for on-the-run variable rate government bonds. SBI
is no longer used as the reference rate since the countrys central bank stopped issuing three-month SBIs earlier
in 2011.

On February 2, 2012 the Government issued, through auction, its first project based Sukuk. The
Government projects underlying the Sukuk resulted in the series being named Series PBS002 and Series PBS003,
with an aggregate amount of Rp925 billion. Series PBS 001 and the Series PBS004 followed on February 16,
2012. During 2012, the Government issued in total Rp 16.71 trillion under the project based Sukuk Series
(PBS001, PBS002, PBS003, and PBS004). The Government continued to issue the SPN-S during 2012 with an
issuance totaling Rp1.38 trillion. Starting with the issuance of series SR004 on March 21, 2012, the Government
implemented a maximum limit of Rp5 billion per investor per series, to increase participation among retail
investors. The total issue amount of SR004 was Rp13.61 trillion. The Government also issued eight series of
non-tradable Sukuk through private placement to the Ministry of Religious Affairs in an aggregate amount of
Rp 15.34 trillion during 2012.

In 2013, the Government continued to issue six series of project-based Sukuk (four series were reopening
and two were new issuances) totaling Rp9.32 trillion and the SPN-S totaling Rp11.65 trillion. On February 27,
2013, the Government issued its fifth domestic retail Sukuk series SR005, with an aggregate amount of
Rp14.97 trillion at a coupon rate of 6% per annum and a maturity date of February 27, 2016.

On March 5, 2014, the Government issued its sixth domestic retail sukuk series SR006, with an aggregate
amount of Rp19.3 trillion at a coupon rate of 8.75% per annum with a maturity date of March 5, 2017.

The Government plans to regularly issue these Islamic-based financial market instruments through auction,
book-building and private placement. Beside developing the domestic market, the Government has continued to

207
develop the global Islamic financial market through the issuance of standalone sovereign sukuk in the
international market since 2009. Since 2012, the Republic has issued international sukuk under its Islamic Global
Medium Term Notes (Islamic GMTN). Total global Sukuk issuance by the Government to date amounts to
U.S.$5.65 billion (of which U.S.$4 billion is issued under the Islamic GMTN) with a total outstanding amount of
U.S.$5 billion.

As of September 30, 2014 the outstanding aggregate face amount of Sukuk issued by the Government was
Rp205.7 trillion, consisting of tradable Sukuk in an aggregate face amount of Rp170.5 trillion (or 82.89% of the
total face amount outstanding) and non-tradable Sukuk in an aggregate face amount of Rp35.2 trillion (or 17.11%
of the total face amount outstanding).

The Government plans to widen its sources of domestic debt financing through Government Regulation
No. 54 of 2008 regarding the Procedure for Withdrawing and On Lending of Domestic Loans. The regulation
facilitates loans from domestic state banks to finance certain projects, to be lent to regional governments and
state-owned-enterprises through a two-step lending mechanism.

Contingent Liabilities
Since 2005, the IDIC has guaranteed third-party deposits in banks in the form of savings accounts, current
accounts, time deposits, certificates of deposit, and other similar types of deposits. Since October 13, 2008, the
maximum amount of deposits guaranteed is Rp2 billion for each deposit in one bank. For Sharia-based banks, the
IDIC insures Wadiah current accounts, Wadiah savings accounts, Mudharabah savings accounts, Mudharabah
time deposits and other similar forms of deposit. The IDIC was established in September 2005 with initial capital
of Rp4 trillion (about U.S.$448 million), provided by the Government. Total assets of the IDIC as of March 31,
2014 were Rp47.61 trillion (approximately U.S.$4,174.77 million). The IDIC Law stated that if the IDIC
encounters liquidity problems, it may borrow from the Government, and if the IDICs capital drops below its
initial capital, the Government, with DPRs consent, will recapitalize it.

In 2003, the Government provided a liquidity facility to cover any shortfall in servicing liabilities related to
Tanjung Jati B, a restructured electric power generation project, which is expected to remain outstanding for the
20-year concession period for the project. The Government has established a directorate under the Ministry of
Finance to manage fiscal risk, including contingent liabilities from infrastructure development and state-owned-
enterprises. See Infrastructure Development.

In accordance with government regulations and presidential decrees issued in 2006 and 2007, the
Government has instructed PLN to accelerate the construction of coal power plants with an aggregate capacity of
10,000 MW and associated transmission lines. The total value of generation and transmission of the project is
estimated at Rp113.9 trillion, of which approximately 85.0% will be financed by commercial credit. The
Government will provide PLN a full payment default risk guarantee to pay any successful claim in connection
therewith within 45 days. The Government set aside a reserve of Rp889 billion in the Revised 2011 Budget for
any liabilities arising from this guarantee, based on possible exposure and default probabilities. The Government
allocated a budget of Rp623.3 billion in the Revised 2012 Budget to guarantee these liabilities. The Government
allocated a budget of Rp611.2 billion in the Revised 2013 Budget, Rp913.7 billion in the Revised 2014 Budget
and Rp833.2 billion in the 2015 Budget for liabilities arising from the guarantee, based on possible exposure and
default probabilities. As of November 30, 2014, there had been no realization of these liabilities. As of
September 30, 2014, the Governments outstanding contingent liability for PLN is Rp19.5 trillion
(U.S.$3 billion).

The Government also supports PLNs ability to meet any liabilities from commercial credit for financing the
10,000 MW project. The Government support is an effort by the Government to safeguard PLN from events of
default and enhance PLNs soundness. This support is in the form of (i) increasing PLNs margin from 0% to
5.0% in 2009, from 5.0% to 8.0% in 2010; (ii) increasing the electricity tariff in 2010 and an increase to the
electricity tariff of approximately 15.0% on average in 2013, which is applied every quarter for customers above
900VA; and (iii) a policy to give a direct soft loan from the Government to PLN valued at Rp7.5 trillion in 2010.
PLNs margins did not increase from 2010 to 2011 or 2012 to 2013 and remained at 8.0% in 2011 and at 7.0% in
both 2012 and during the six months ended June 30, 2013. PLNs margin decreased from 8.0% to 7.0% from
2011 to 2012. In addition, electricity tariffs did not increase in 2011 or 2012 and the Government did not give
direct soft loans to PLN in 2011, 2012 or during the six months ended June 30, 2013.

In order to achieve its millennium development goals in water provision, the Government agreed to
guarantee Perusahaan Daerah Air Minum (PDAM), a local government-owned water company, on credit. The

208
Government will provide a partial default risk guarantee for PDAM. Under the terms of the government
guarantee, the Government has agreed to pay 70.0% of PDAMs principal payments to the lenders in the event
that PDAM defaults. The Government allocated a budget of Rp15.0 billion in the Revised 2011 Budget,
Rp10.0 billion in the Revised 2012 Budget, Rp35.0 billion in the Revised 2013 Budget, Rp2.2 billion in the
Revised 2014 Budget and Rp1.9 billion in the 2015 Budget for liabilities arising from this guarantee, based on
possible exposures and default probabilities. As of November 30, 2014, no liabilities had been realized. As of
November 2014, no liabilities have materialized from those guarantees. As of December 31, 2013, outstanding
guarantees for the PDAM was Rp205.1 billion.

In 2011, the Government provided a guarantee for Central Java 2 x 1000 MW Steam Power Plant PPP
Project using a mutual government guarantee scheme between the Government and Indonesia Infrastructure
Guarantee Fund (IIGF) which is mandated based on Presidential Regulation No. 78 of 2010 regarding Guarantee
for Public-Private Partnership Infrastructure Project through Infrastructure Guarantee Fund. This project is the
first large-scale showcase PPP project, worth more than Rp30 trillion. The Government and IIGF guarantee
specific financial obligations of PLN under this program. This guarantee was expected to become effective in
2013 as the project reached financial close, but due to a delay in achieving financial close, the guarantee has been
extended until 2014. The Government allocated Rp59.8 billion in the Revised 2013 Budget, Rp48.2 billion in the
Revised 2014 Budget and Rp269.5 billion in the 2015 Budget for any liabilities arising from this guarantee,
based on possible exposures and default probabilities.

The Government is committed to managing contingent liabilities and has established a designated unit
within the Ministry of Finance to deal with contingent liabilities and by setting aside a special fund to meet these
future liabilities.

In order to support the infrastructure provision through the PPP scheme, the Ministry of Finance issued the
Minister of Finance Regulation No. 223/PMK.011/2012 concerning Construction Cost Contribution for PPP
Project (Viability Gap Fund). The Viability Gap Fund provided by the Ministry of Finance offers financial
support for the PPP projects by assisting with a portion of the construction costs of each PPP project. The
objectives of the Viability Gap Fund are: (i) to increase the financial viability of the PPP project; (ii) to increase
certainty of the infrastructure project provision in accordance to the planned quality and timing; and (iii) to
increase the availability of infrastructure with affordable tariffs for the community. The Government allocated a
budget of Rp341 billion in the Revised 2013 Budget and Rp226 billion in the Revised 2014 Budget to support the
preparation of two PPP projects.

The Government established the Geothermal Fund Facility to finance geothermal project exploration. The
Indonesia Investment Agency (Pusat Investasi Pemerintah) has been assigned to manage this fund. The
objectives of the Geothermal Fund Facility are: (i) to increase the contribution of renewable energy resources,
especially geothermal energy, in the energy mix; and (ii) to make geothermal projects financially viable and
bankable by providing exploration data, which is verified by reputable international institutions. The Government
allocated Rp1,126.5 billion in the Revised 2011 Budget, Rp876.5 billion in the Revised 2012 Budget and
Rp1,126.5 billion in the Revised 2013 Budget for the Geothermal Fund Facility.

Foreign Exchange and Reserves

Exchange Rates
From 1978 to 1997, Indonesia maintained a managed floating exchange rate system under which the Rupiah
was linked to a basket of currencies, the composition of which was based on Indonesias main trading partners.
Indonesia has adopted a free floating exchange rate system since August 1997, under which market forces
determine the exchange rate for the Rupiah. See Monetary Policy.

209
 The following table sets forth information on exchange rates between the Rupiah and certain other
currencies as of the end of the periods indicated.

Exchange Rates

Rupiah
Rupiah per 100 Rupiah per
per U.S. Japanese Rupiah Singapore
dollar yen per Euro dollar

2008 ..................................................... 10,950 12,123 15,432 7,607

2009 ..................................................... 9,400 10,170 13,510 6,698
2010 ..................................................... 8,991 11,028 11,956 6,981
2011 ..................................................... 9,068 11,680 11,739 6,974
2012 ..................................................... 9,670 11,197 12,810 7,907
2013 ..................................................... 12,189 11,617 16,821 9,628
2014
January . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,226 11,955 16,688 9,678
February . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,634 11,419 15,946 9,193
March . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,404 11,165 15,674 9,050
April . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,532 11,261 15,922 9,178
May . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,611 11,435 15,794 9,254
June . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,969 11,815 16,333 9,582
July . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,591 11,390 15,608 9,342
August . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,717 11,297 15,444 9,382
September . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,212 11,170 15,495 9,585
October . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,082 11,043 15,222 9,455
November . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,196 10,322 15,197 9,366
December . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,440 10,424 15,133 9,422
Source: Bank Indonesia

In the first half of 2009, the Rupiah appreciated 7.1% to Rp10,225 per U.S. dollar. This appreciation was in
line with the U.S. dollars depreciation against most hard currencies and Asian emerging market currencies.
Improved investor risk appetite attracted capital inflows into emerging market assets such as Rupiah
denominated assets. Capital inflows into Indonesia were supported by positive macroeconomic indicators such as
slowing inflation, moderate growth, an improving balance of trade and political stability. In the second half of
2009, the Rupiah continued to appreciate by 8.1% against the U.S. dollar and closed at Rp9,400 per U.S. dollar
on December 31, 2009.

In the first half of 2010, the Rupiah appreciated 3.6% to Rp9,083 per U.S. dollar. This appreciation was in
line with the U.S. dollars depreciation against most hard currencies and Asian emerging market currencies. In
the second half of 2010, the Rupiah continued to appreciate by 0.9% against the U.S. dollar and closed at
Rp8,991 per U.S. dollar on December 31, 2010.

In the first half of 2011, the Rupiah appreciated 3.6% to Rp8,597 per U.S. dollar. The strengthening of the
Rupiah was closely tied to global investor funds that continued to flow into Asias emerging markets. In the third
quarter of 2011, the Rupiah depreciated by 1.2% to Rp8,940 per U.S. dollar. This was in line with the
depreciation of regional currencies closely tied with the prolonged financial crisis in Europe. The Rupiah closed
at Rp9,068 per U.S. dollar on December 31, 2011.

In the first half of 2012, the Rupiah depreciated 4.5% to Rp9,480 per U.S. dollar. Pressure on the Rupiah
was related to the Eurozone crisis which triggered a higher demand for foreign currency by non-residents for
rebalancing their portfolios. Another source of pressure on the Rupiah was the increase in imports in 2012. In the
second half of 2012, the Rupiah depreciated 2.0% against the U.S. dollar, closing at Rp9,670 per U.S. dollar on
December 28, 2012. The slow global economic recovery and Indonesias widening current account deficit were
the main factors behind the depreciation.

In the first half of 2013, the Rupiah depreciated 2.9% (quarter-to-quarter) to Rp9,925 per U.S. dollar, or on
average depreciated by 3.8% (quarter-to-quarter) to Rp9,732 per U.S. dollar. The weakening of the Rupiah
during the six months ended June 30, 2013 was consistent with the exchange rate depreciation in the region and,
according to Bank Indonesia, was primarily the result of foreign investors adjusting their portfolios in

210
anticipation of the U.S. Federal Reserve changing their monetary stimulus policy. As of December 31, 2013 the
Rupiah exchange rate was Rp12,189 to the U.S. dollar. The Rupiah declined approximately 26.9% against the
U.S. dollar between December 31, 2012 and December 31, 2013.

In the first half of 2014, the Rupiah appreciated 1.8% to Rp11,969 per U.S. dollar. The appreciation of
Rupiah was in line with the appreciation of regional currencies due to an increase in global investors risk
appetite for higher yielding assets. From July 1, 2014 to December 31, 2014, the Rupiah depreciated 3.9% to
Rp12,440 per U.S dollar. Rupiah depreciation was attributed to both external and internal factors, predominantly
the slowing down of global and domestic economy.

Prudential Policies on Foreign Exchange and Rupiah

Foreign currency is generally freely transferable within or from Indonesia. However, to maintain the
stability of the Rupiah, and to prevent the utilization of the Rupiah for speculative purposes by foreign parties,
the Rupiah is non-internationalized. Regulations prohibit banks from conducting, among others, the following
transactions: (i) extensions of loans or of overdrafts in Rupiah or foreign currencies to foreign parties,
(ii) transfers of Rupiah to foreign parties or offshore banks in excess of Rp500 million without underlying
transactions and (iii) purchases of Rupiah-denominated securities issued by foreign parties. These regulations
also restrict Indonesian banks from entering into derivative transactions with foreign parties in the form of,
among others, buy and sell foreign exchange derivative transactions, with nominal amounts in excess of
U.S.$1 million or its equivalent, unless they are related to an underlying investment in Indonesia. Derivative
hedging transactions linked to investments in Indonesia are required to have at least a one-week tenor and are
supported by required documentation.

To curb speculative derivative transactions that could destabilize the value of the Rupiah, on September 15,
2005 Bank Indonesia implemented new regulations on derivative transactions. The new regulations prohibit
banks from conducting margin trading on foreign currency against the Rupiah and prohibit banks from holding
certain derivative transaction positions with their related parties. Bank Indonesia has, however, continued to
support investors who hedge their investments in Indonesia through long-term derivative transactions with banks.
Bank Indonesia provides this support by permitting banks to pass on their exposure under certain permitted
hedging transactions entered into in respect of foreign financing for investment in infrastructure, public utilities,
or factories producing input products.

Bank Indonesia may request information concerning the foreign exchange activities of all natural persons
and legal entities that are domiciled, or plan to domicile, in Indonesia for at least one year. Bank Indonesia
regulations also require all resident banks and non-bank financial institutions, as well as companies with total
assets or total annual gross revenue over Rp100 billion, to report to it all data concerning their foreign currency
activities.

In the third quarter of 2014, Bank Indonesia issued several regulations concerning foreign currency
transactions against the Rupiah in order to deepen financial markets. A deep foreign exchange market is
distinguished by adequate liquidity, convenient transactions, fair prices and minimal risk in order to maintain
economic stability. Therefore, Bank Indonesia strives towards the creation of a liquid, efficient and secure
domestic foreign exchange market through amendments to regulations concerning foreign exchange transactions.
The latest amendment covers foreign exchange transactions against the Rupiah settled between banks and their
domestic customers, banks and a foreign party, as well as banks and Bank Indonesia. The amendment also
contains a strategic and comprehensive approach, taking into consideration efforts to bolster economic activity in
the real sector and to minimize speculative transactions on the rupiah. The regulations which became effective on
November 10, 2014, include the following:
a. Bank Indonesia Regulation No.16/16/PBI/2014 Concerning Foreign Exchange Transactions against
Rupiah with Domestic Parties;
b. Bank Indonesia Regulation No.16/17/PBI/2014 Concerning Foreign Exchange Transactions against
Rupiah with Foreign Parties;
c. Bank Indonesia Regulation No.16/18/PBI/2014 Concerning Amendment of Bank Indonesia Regulation
No. 15/8/PBI/2013 concerning Hedging Transaction to Bank; and
d. Bank Indonesia Regulation No.16/19/PBI/2014 Concerning Amendment of Bank Indonesia Regulation
No.15/17/PBI/2013 concerning Swap Transaction to Bank Indonesia for Hedging Purpose.

211
 Concerning the regulation on foreign exchange transactions between a bank and its customers (domestic and
foreign), Bank Indonesia will promulgate several provisions that summarize and elaborate upon a number of
existing regulations regarding foreign exchange transactions amended to provide increased flexibility and a more
precise explanation to market participants when conducting foreign exchange transactions. The amendment set
forth amongst others, relaxing and clarifying underlying assets, the types of transactions that can be used as an
underlying transaction, thresholds for foreign exchange transactions, clarifying netting to settle a transaction, as
well as restrictions on extending credit or financing in a foreign currency and/or the Rupiah for derivative
transactions.

The amended regulation officially supersedes the following six Bank Indonesia Regulations:
a. Bank Indonesia Regulation No.10/28/PBI/2008 concerning the Purchase of Foreign Exchange against
the Rupiah to a Bank;
b. Bank Indonesia Regulation No.10/37/PBI/2008 concerning Foreign Exchange Transactions against the
Rupiah;
c. Bank Indonesia Regulation No.11/14/PBI/2009 concerning Amendment of Bank Indonesia Regulation
No.10/37/PBI/2008 concerning Foreign Exchange Transactions against the Rupiah;
d. Bank Indonesia Regulation No.7/14/PBI/2005 concerning Restrictions on Rupiah Transactions and the
Extension of Foreign Currency Credit by a Bank;
e. Bank Indonesia Regulation No.14/10/PBI/2012 concerning Amendment of Bank Indonesia Regulation
No.7/14/PBI/2005 concerning Restrictions on Rupiah Transactions and the Extension of Foreign
Currency Credit by a Bank; and
f. Bank Indonesia Regulation No.16/9/PBI/2014 concerning Second Amendment of Bank Indonesia
Regulation No.7/14/PBI/2005 concerning Restrictions on Rupiah Transactions and the Extension of
Foreign Currency Credit by a Bank.

New Law No. 7 of 2011, dated June 28, 2011, on Currency has been enacted to ensure the use of Rupiah for
every transaction which will be settled inside the jurisdiction of the Republic. This provision, however, does not
apply for transactions with respect to the implementation of state budgets, granting or receiving grants (hibah)
from or to outside the Republic, international trade, bank savings in the form of foreign currency or international
financings.

On June 8, 2012, Bank Indonesia issued Bank Indonesia No. 14/5/PBI/2012 regarding the amendment to
Bank Indonesia Regulation No. 12/11/PBI/2010 concerning Monetary Operations. In the context of enhancing
domestic economic resilience through liquidity management and augmentation of monetary operation
instruments, the amendment was made to support the development of domestic foreign currency markets and to
achieve the operational targets of monetary policy. Bank Indonesia also introduced term deposits in foreign
currency to increase the foreign exchange supply in the market and to enhance monetary policy through a foreign
exchange swap operation in this amendment. On August 27, 2013, Bank Indonesia issued Bank Indonesia
Regulation No. 15/5/PBI/2013 regarding the second amendment to Bank Indonesia Regulation No. 12/11/PBI/
2010 concerning Monetary Operations. Such amendment was made to introduce the issuance of Bank Indonesia
Certificates of Deposit (SDBI) as part of Bank Indonesia policy to maintain macroeconomic stability. On
December 24, 2013, Bank Indonesia issued Bank Indonesia Regulation (PBI) No.15/17/PBI/2013 concerning the
swap hedging transaction to Bank Indonesia. PBI No. 15/17/PBI/2013 revoked PBI No. 7/36/PBI/2005 to support
the deepening of the financial markets and real economic activity through the provision of hedging outlets. The
amendments in the new regulation include, among others, the expansion of the underlying transactions and tenor
of contracts (up to three years) and the adjustment of pricing based on market mechanisms. Previously under PBI
No 7/36/PBI/2005, banks could only enter into swap hedging transactions with Bank Indonesia to hedge their
foreign loans if the underlying transaction involved an infrastructure project and the length of contract was
limited to three to six months. In addition, the new regulation anticipates that the transaction shall be settled
using the full settlement of fund mechanism.

212
International Reserves
The following table sets forth the Republics total official international reserves, expressed in (i) U.S. dollar
equivalents and (ii) the number of months of imports and government external debt repayments, in each case at
the end of the periods indicated. These reserves consist of foreign exchange, gold, SDRs and a reserve position
with the IMF. Since May 2000, Indonesia has complied with the IMFs new Special Data Dissemination
Standard requirement on international reserves and foreign exchange currency liquidity.

Official International Reserves of the Republic

As of
As of December 31, November 30,
2009 2010 2011 2012 2013 2014
(in millions of U.S. dollars, except for months)
Gold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,552 3,299 3,593 3,935 3,023 2,999
SDRs(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,753 2,714 2,696 2,715 2,712 2,579
Reserve position with the IMF . . . . . . . . . . . . . . . 227 224 223 224 224 213
Foreign exchange(2) and others . . . . . . . . . . . . . . . 60,572 89,970 103,611 105,907 93,247 105,353
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66,105 96,207 110,123 112,781 99,386 111,144
Total as number of months of imports and
government external debt repayments . . . . . . . 6.6 7.2 6.5 6.1 5.4 6.4

Source: Bank Indonesia

(1) The increase in SDRs is due to certain refunds from the IMF.
(2) Converted into U.S. dollars at the applicable BI middle exchange rates as of the respective dates indicated.

Indonesias foreign exchange reserves increased from U.S.$66.1 billion as of December 31, 2009 to
U.S.$96.2 billion as of December 31, 2010, equal to 7.2 months of imports and government debt repayments.
This substantial increase was due to significant surplus of balance of payments for 2010, contributed primarily by
the capital and financial account surplus. As of December 31, 2011, Indonesias international reserves increased
to U.S.$110.1 billion due to an increase in oil and gas export receipts and an increase in foreign currency reserve
requirements. As of December 31, 2012, Indonesias international reserves increased to U.S.$112.8 billion, equal
to 6.1 months of imports and government debt repayments. This increase was in line with the recovery of
commodities prices. Indonesias foreign exchange reserves decreased to U.S.$99.4 billion as of December 31,
2013, equal to 5.5 months of imports and government debt repayments. This decrease in international reserves to
U.S.$99.4 billion as of December 31, 2013, equal to 5.5 months of imports and government debt repayments,
was in line with the pressures on Indonesias balance of payments, particularly on the capital and financial
account side. As of November 30, 2014, Indonesias foreign exchange reserves decreased slightly to U.S.$111.1
billion. The decrease was mainly due to the Governments external debt payments and the use of foreign
exchange for monetary management by Bank Indonesia. This amount was equivalent to 6.4 months of imports
and government debt repayments.

Regional Swap Arrangements of the Republic

Following the experience of the Asian crisis in 1997 to 1998, ASEAN recognized a need to strengthen
regional self-help and support mechanisms in East Asia and endeavored to prevent future financial crises. In
2000, ASEAN members agreed to strengthen the existing cooperative frameworks among monetary authorities
through the Chiang Mai Initiative (CMI). The CMI involves an expanded ASA (extending its coverage to all
members of ASEAN and increasing the size) and a network of BSAs among ASEAN+3 countries. The objectives
of these bilateral swap arrangements are to address short-term liquidity difficulties in the region and to
supplement existing international financial arrangements.

The ASA was originally created by five ASEAN member states in 1977 with a size of U.S.$100 million.
After the CMI, it has been enlarged to include all ten ASEAN countries and increased in size to U.S.$2 billion.

Since CMIs inception in 2000, ASEAN+3 member countries undertook a review to explore ways of
enhancing its effectiveness. On 2010, ASEAN+3 member countries entered into a multilateral currency swap
contract which covers all ASEAN+3 member countries with a total size of U.S.$120 billion (the CMI
Multilateralization or CMIM). CMIM was developed from the CMI-BSA network to facilitate prompt and
simultaneous currency swap transactions through establishing a common decision making mechanism under a
single contract. The CMIM objectives are the same as the BSAs. In May 2012 and in response to the global and

213
regional economic developments, the ASEAN+3 Finance Ministers and Central Bank Governors agreed to
strengthen the CMIM as a regional financial safety net by doubling the total size to U.S.$240 billion and
launching a crisis prevention program called the CMIM Precautionary Line (CMIM-PL). In addition to the role
of providing liquidity support for ASEAN+3 member countries, CMIM has contributed to the development of the
regional surveillance capacity by establishing the ASEAN+3 Macroeconomic Research Office (AMRO) as an
ASEAN+3 independent surveillance unit since early 2011.

Under the ASA, BSA, and CMIM, a total of U.S.$46.1 billion of foreign currency swap was available to the
Republic as of July 17, 2014. Up to 30.0% of the amount available under the BSAs and CMIM may be activated
without participating in any IMF program, but greater amounts requires participation in an IMF program. These
swap arrangements will contribute to greater financial stability and sustainable economic growth in the region.

Debt-to-GDP Ratios
The following table sets forth the Republics debt-to-GDP ratio and debt service to GDP ratio as of the dates
indicated.

Debt-to-GDP Ratios

As of
As of December 31, September 30,
2009 2010 2011 2012P 2013P 2014
(percentages)
Debt-to-GDP ratio(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28.3 26.1 24.3 24.0 26.1 25.6
Debt service to GDP ratio(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.7 3.2 3.1 3.1 3.0 3.6
Source: Ministry of Finance
P Preliminary.
(1) Outstanding foreign currency debt was converted to Rupiah using the Bank Indonesia middle exchange rate at the end of each period
indicated in the table.

214
 DESCRIPTION OF THE NOTES

1. General
(a) The particular terms of any Notes sold will be described in an accompanying supplement to this
Offering Circular (a Pricing Supplement). The terms and conditions set forth in Description of the
Notes below will apply to each Note unless otherwise specified in the applicable Pricing Supplement
and in such Note.
(b) The Notes are duly authorized issues of Notes of the Republic of Indonesia (the Republic) (each Note
a Note, and collectively, the Notes), and are issued pursuant to an Indenture dated as of January 28,
2009, among, inter alia, the Republic and The Bank of New York Mellon, as Trustee (the Trustee), as
amended by the First Supplemental Indenture dated January 5, 2010, the Second Supplemental
Indenture dated June 21, 2014, the Third Supplemental Indenture dated January 8, 2015 and as further
amended, supplemented and/or restated from time to time (the Indenture). The terms of the Notes are
subject to all the provisions contained in the Indenture and the conditions set out in the Note (as
modified and supplemented by the applicable Pricing Supplement, the Conditions). The Pricing
Supplement for each Note supplements the Conditions and may specify other terms and conditions,
which shall, to the extent so specified or to the extent inconsistent with the Conditions, replace or
modify the Conditions for the purposes of the Note. The holders of the Notes (the Holders) will be
entitled to the benefits of, be bound by, and be deemed to have notice of, all of the provisions of the
Indenture. A copy of the Indenture is on file and may be inspected at the Corporate Trust Office of the
Trustee in New York City. All capitalized terms used in this Description of the Notes but not defined
herein shall have the meanings assigned to them in the Indenture and in the Pricing Supplement.
(c) The Notes are direct, unconditional, unsecured and general obligations of the Republic without
preference granted by the Republic to one above the other. The Notes rank equal in right of payment
among themselves and with all other unsecured and unsubordinated External Indebtedness (as defined
below) of the Republic, from time to time outstanding; provided, however, that, consistent with similar
provisions in the Republics other External Indebtedness, the Republic shall have no obligation to
effect equal or ratable payment(s) at any time with respect to any such other External Indebtedness and,
in particular, shall have no obligation to pay other External Indebtedness at the same time or as a
condition of paying sums due on the Notes and vice versa. All amounts payable under the Notes are
backed by the full faith and credit of the Republic.
(d) Registered Notes are issued in fully registered form, without coupons. Registered Notes may be issued
in certificated form (the Certificated Securities), or may be represented by one or more registered
global securities (each, a Registered Global Security) held by or on behalf of the Depositary.
Certificated Securities will be available only in the limited circumstances set forth in the Indenture. The
Registered Notes, and transfers thereof, shall be registered as provided in Clause 2.6 of the Indenture.
Any person in whose name a Registered Note shall be registered may (to the fullest extent permitted by
applicable law) be treated at all times, by all persons and for all purposes as the absolute owner of such
Registered Note regardless of any notice of ownership, theft, loss or any writing thereon.
(e) Bearer Notes are issued in bearer form, with Coupons (and, where appropriate, Talons) attached,
except in the case of Zero Coupon Notes in which case references to interest (other than in relation to
interest due after the Maturity Date), Coupons and Talons in the Conditions are not applicable.
Installment Notes are issued with one or more Receipts attached. Bearer Notes may be issued in
definitive form, or may be represented by one or more global notes held by or on behalf of the
Depositary. Definitive Bearer Notes will be available only in the limited circumstances set forth in the
Indenture. Any holder of any Bearer Note, Receipt, Coupon or Talon may (to the fullest extent
permitted by applicable law) be treated at all times, by all persons and for all purposes as the absolute
owner of such Bearer Note, Receipt, Coupon or Talon regardless of any notice of ownership, theft, loss
or any writing thereon. Title to the Bearer Notes and any Coupon shall pass by delivery.
(f) Notes may be issued with the benefit of a guarantee. Details of any guarantee and the guarantor will be
set out in the applicable Pricing Supplement.

2. Principal and Interest

The Republic for value received, hereby promises to pay to the Holder on the Maturity Date (or on such
earlier date as the amount payable upon redemption under the Conditions may become repayable in

215
 accordance with the Conditions) the amount payable upon redemption to the Holder under the Conditions
and (unless the Note does not bear interest) to pay to the Holder interest in respect of such Note from the
Interest Commencement Date in arrears at the rates, in the amounts and on the dates for payment provided
for in the Conditions together with such other sums and additional amounts (if any) as may be payable under
the Conditions, in accordance with the Conditions.

2A. General
The Note may be a Fixed Rate Note, a Floating Rate Note, a Zero Coupon Note, an Index Linked Interest
Note, an Index Linked Redemption Note, an Installment Note, a Dual Currency Note or a Partly Paid Note,
a combination of any of the foregoing or any other kind of Note, depending upon the Interest and
Redemption/Payment Basis shown in the Pricing Supplement. Details of such Interest, Redemption and/or
Payment Basis not set out herein shall be set out in the Pricing Supplement.

2B. Interest and Calculations

(a) Interest on Fixed Rate Notes: Each Fixed Rate Note bears interest on its outstanding nominal amount
from the Interest Commencement Date at the rate per annum (expressed as a percentage) equal to the
Rate of Interest, such interest being payable in arrears on each Interest Payment Date. The amount of
interest payable shall be determined in accordance with Condition 2B(h).
(b) Interest on Floating Rate Notes and Index Linked Interest Notes:
(i) Interest Payment Dates: Each Floating Rate Note and Index Linked Interest Note bears interest on
its outstanding nominal amount from the Interest Commencement Date at the rate per annum
(expressed as a percentage) equal to the Rate of Interest, such interest being payable in arrears on
each Interest Payment Date. The amount of interest payable shall be determined in accordance
with Condition 2B(h). Such Interest Payment Date(s) is/are either shown in the Pricing
Supplement as Specified Interest Payment Dates or, if no Specified Interest Payment Date(s) is/are
shown in the Pricing Supplement, Interest Payment Date shall mean each date which falls the
number of months or other period shown in the Pricing Supplement as the Interest Period after the
preceding Interest Payment Date or, in the case of the first Interest Payment Date, after the Interest
Commencement Date.
(ii) Business Day Convention: If any date referred to in the Conditions that is specified to be subject
to adjustment in accordance with a Business Day Convention would otherwise fall on a day that is
not a Business Day, then, if the Business Day Convention specified is (A) the Floating Rate
Business Day Convention, such date shall be postponed to the next day that is a Business Day
unless it would thereby fall into the next calendar month, in which event (x) such date shall be
brought forward to the immediately preceding Business Day and (y) each subsequent such date
shall be the last Business Day of the month in which such date would have fallen had it not been
subject to adjustment, (B) the Following Business Day Convention, such date shall be postponed
to the next day that is a Business Day, (C) the Modified Following Business Day Convention,
such date shall be postponed to the next day that is a Business Day unless it would thereby fall
into the next calendar month, in which event such date shall be brought forward to the
immediately preceding Business Day or (D) the Preceding Business Day Convention, such date
shall be brought forward to the immediately preceding Business Day.
(iii) Rate of Interest for Floating Rate Notes: The Rate of Interest in respect of Floating Rate Notes for
each Interest Accrual Period shall be determined in the manner specified in the Pricing
Supplement and the provisions below relating to either ISDA Determination or Screen Rate
Determination shall apply, depending upon which is specified in the Pricing Supplement.
(A) ISDA Determination for Floating Rate Notes
Where ISDA Determination is specified in the Pricing Supplement as the manner in which
the Rate of Interest is to be determined, the Rate of Interest for each Interest Accrual Period
shall be determined by the Calculation Agent as a rate equal to the relevant ISDA Rate. For
the purposes of this paragraph 2B(b)(iii)(A), ISDA Rate for an Interest Accrual Period
means a rate equal to the Floating Rate that would be determined by the Calculation Agent
under a Swap Transaction under the terms of an agreement incorporating the ISDA
Definitions and under which:
(x) the Floating Rate Option is as specified in the Pricing Supplement;

216
 (y) the Designated Maturity is a period specified in the Pricing Supplement; and
(z) the relevant Reset Date is the first day of that Interest Accrual Period unless otherwise
specified in the Pricing Supplement.
For the purposes of paragraph 2B(b)(iii)(A), Floating Rate, Calculation Agent, Floating
Rate Option, Designated Maturity, Reset Date and Swap Transaction have the
meanings given to those terms in the ISDA Definitions.
(B) Screen Rate Determination for Floating Rate Notes
(x) Where Screen Rate Determination is specified in the Pricing Supplement as the manner
in which the Rate of Interest is to be determined, the Rate of Interest for each Interest
Accrual Period will, subject as provided below, be either:
(1) the offered quotation; or
(2) the arithmetic mean of the offered quotations,
(expressed as a percentage rate per annum) for the Reference Rate which appears or
appear, as the case may be, on the Relevant Screen Page as of either 11.00 a.m. (London
time in the case of LIBOR or Brussels time in the case of EURIBOR) on the Interest
Determination Date in question as determined by the Calculation Agent. If five or more
of such offered quotations are available on the Relevant Screen Page, the highest (or, if
there is more than one such highest quotation, one only of such quotations) and the
lowest (or, if there is more than one such lowest quotation, one only of such quotations)
shall be disregarded by the Calculation Agent for the purpose of determining the
arithmetic mean of such offered quotations.
If the Reference Rate from time to time in respect of Floating Rate Notes is specified in
the Pricing Supplement as being other than LIBOR or EURIBOR, the Rate of Interest in
respect of such Notes will be determined as provided in the Pricing Supplement.
(y) If the Relevant Screen Page is not available or if, Condition 2B(b)(iii)(B)(x)(1) applies
and no such offered quotation appears on the Relevant Screen Page or if Condition
2B(b)(iii)(B)(x)(2) above applies and fewer than three such offered quotations appear on
the Relevant Screen Page in each case as of the time specified above, subject as
provided below, the Calculation Agent shall request, if the Reference Rate is LIBOR,
the principal London office of each of the Reference Banks or, if the Reference Rate is
EURIBOR, the principal Euro-zone office of each of the Reference Banks, to provide
the Calculation Agent with its offered quotation (expressed as a percentage rate per
annum) for the Reference Rate if the Reference Rate is LIBOR, at approximately
11.00 a.m. (London time), or if the Reference Rate is EURIBOR, at approximately
11.00 a.m. (Brussels time) on the Interest Determination Date in question. If two or
more of the Reference Banks provide the Calculation Agent with such offered
quotations, the Rate of Interest for such Interest Accrual Period shall be the arithmetic
mean of such offered quotations as determined by the Calculation Agent.
(z) If Condition 2B(b)(iii)(B)(y) above applies and the Calculation Agent determines that
fewer than two Reference Banks are providing offered quotations, subject as provided
below, the Rate of Interest shall be the arithmetic mean of the rates per annum
(expressed as a percentage) as communicated to (and at the request of) the Calculation
Agent by the Reference Banks or any two or more of them, at which such banks were
offered, if the Reference Rate is LIBOR, at approximately 11.00 a.m. (London time) or,
if the Reference Rate is EURIBOR, at approximately 11.00 a.m. (Brussels time) on the
relevant Interest Determination Date, deposits in the Specified Currency for a period
equal to that which would have been used for the Reference Rate by leading banks in, if
the Reference Rate is LIBOR, the London inter-bank market or, if the Reference Rate is
EURIBOR, the Euro-zone inter-bank market, as the case may be, or, if fewer than two
of the Reference Banks provide the Calculation Agent with such offered rates, the
offered rate for deposits in the Specified Currency for a period equal to that which
would have been used for the Reference Rate, or the arithmetic mean of the offered rates
for deposits in the Specified Currency for a period equal to that which would have been
used for the Reference Rate, at which, if the Reference Rate is LIBOR, at approximately
11.00 a.m. (London time) or, if the Reference Rate is EURIBOR, at approximately

217
 11.00 a.m. (Brussels time), on the relevant Interest Determination Date, any one or more
banks (which bank or banks is or are in the opinion of the Trustee and the Republic
suitable for such purpose) informs the Calculation Agent it is quoting to leading banks
in, if the Reference Rate is LIBOR, the London inter-bank market as of 11.00 a.m.
(London time) or, if the Reference Rate is EURIBOR, the Euro-zone inter-bank market
as of 11.00 a.m. (Brussels time), as the case may be, provided that, if the Rate of Interest
cannot be determined in accordance with the provisions of Condition 2B(b)(iii)(B)(z),
the Rate of Interest shall be determined as of the last preceding Interest Determination
Date (though substituting, where a different Margin or Maximum or Minimum Rate of
Interest is to be applied to the relevant Interest Accrual Period from that which applied
to the last preceding Interest Accrual Period, the Margin or Maximum or Minimum Rate
of Interest relating to the relevant Interest Accrual Period, in place of the Margin or
Maximum or Minimum Rate of Interest relating to that last preceding Interest Accrual
Period).
(iv) Rate of Interest for Index Linked Interest Notes: The Rate of Interest in respect of Index Linked
Interest Notes for each Interest Accrual Period shall be determined in the manner specified in the
Pricing Supplement and interest will accrue by reference to an Index or Formula as specified in
the Pricing Supplement.
(c) Zero Coupon Notes: Where a Note the Interest Basis of which is specified to be Zero Coupon is
repayable prior to the Maturity Date and is not paid when due, the amount due and payable prior to the
Maturity Date shall be the Early Redemption Amount of such Note. As from the Maturity Date, the
Rate of Interest for any overdue principal of such a Note shall be a rate per annum (expressed as a
percentage) equal to the Amortization Yield (as described in Condition 7(b)(i)).
(d) Dual Currency Notes: In the case of Dual Currency Notes, if the rate or amount of interest falls to be
determined by reference to a Rate of Exchange or a method of calculating Rate of Exchange, the rate or
amount of interest payable shall be determined in the manner specified in the Pricing Supplement.
(e) Partly Paid Notes: In the case of Partly Paid Notes (other than Partly Paid Notes which are Zero
Coupon Notes), interest will accrue as aforesaid on the paid-up nominal amount of such Notes and
otherwise as specified in the Pricing Supplement.
(f) Accrual of Interest: Interest shall cease to accrue on each Note on the due date for redemption unless,
upon due presentation, payment is improperly withheld or refused, in which event interest shall
continue to accrue (both before and after judgment) at the Rate of Interest in the manner provided in
Condition 2B to the Relevant Date (as defined in Condition 8).
(g) Margin, Maximum/Minimum Rates of Interest, Installment Amounts and Redemption Amounts
and Rounding:
(i) If any Margin is specified in the Pricing Supplement (either (x) generally, or (y) in relation to one
or more Interest Accrual Periods), an adjustment shall be made to all Rates of Interest, in the case
of (x), or the Rates of Interest for the specified Interest Accrual Periods, in the case of (y),
calculated in accordance with Condition 2B(b) above by adding (if a positive number) or
subtracting the absolute value (if a negative number) of such Margin, subject always to
Condition 2B(g)(ii).
(ii) If any Maximum or Minimum Rate of Interest, Installment Amount or Redemption Amount is
specified in the Pricing Supplement, then any Rate of Interest, Installment Amount or Redemption
Amount shall be subject to such maximum or minimum, as the case may be.
(iii) For the purposes of any calculations required pursuant to the Conditions (unless otherwise
specified), (x) all percentages resulting from such calculations shall be rounded, if necessary, to
the nearest one hundred-thousandth of a percentage point (with halves being rounded up), (y) all
figures shall be rounded to seven significant figures (with halves being rounded up) and (z) all
currency amounts that fall due and payable shall be rounded to the nearest unit of such currency
(with halves being rounded up), save in the case of yen, which shall be rounded down to the
nearest yen. For these purposes unit means the lowest amount of such currency that is available as
legal tender in the countr(y/ies) of such currency.
(h) Calculations: The amount of interest payable per Calculation Amount in respect of any Note for any
Interest Accrual Period shall be equal to the product of the Rate of Interest, the Calculation Amount
specified in the Pricing Supplement, and the Day Count Fraction for such Interest Accrual Period,

218
 unless an Interest Amount (or a formula for its calculation) is applicable to such Interest Accrual
Period, in which case the amount of interest payable per Calculation Amount in respect of such Note
for such Interest Accrual Period shall equal such Interest Amount (or be calculated in accordance with
such formula). Where any Interest Period comprises two or more Interest Accrual Periods, the amount
of interest payable per Calculation Amount in respect of such Interest Period shall be the sum of the
Interest Amounts payable in respect of each of those Interest Accrual Periods. In respect of any other
period for which interest is required to be calculated, the provisions above shall apply save that the Day
Count Fraction shall be for the period for which interest is required to be calculated.
(i) Determination and Publication of Rates of Interest, Interest Amounts, Final Redemption
Amounts, Early Redemption Amounts, Optional Redemption Amounts and Installment
Amounts: The Calculation Agent shall, as soon as practicable on each Interest Determination Date, or
such other time on such date as the Calculation Agent may be required to calculate any rate or amount,
obtain any quotation or make any determination or calculation, determine such rate and calculate the
Interest Amounts for the relevant Interest Accrual Period, calculate the Final Redemption Amount,
Early Redemption Amount, Optional Redemption Amount or Installment Amount, obtain such
quotation or make such determination or calculation, as the case may be, and cause the Rate of Interest
and the Interest Amounts for each Interest Accrual Period and the relevant Interest Payment Date and,
if required to be calculated, the Final Redemption Amount, Early Redemption Amount, Optional
Redemption Amount or any Installment Amount to be notified to the Trustee, the Republic, each of the
Paying Agents, the Holders, any other Calculation Agent appointed in respect of the Notes that is to
make a further calculation upon receipt of such information and, if the Notes are listed on a stock
exchange and the rules of such exchange or other relevant authority so require, such exchange or other
relevant authority as soon as possible after their determination but in no event later than (i) the
commencement of the relevant Interest Period, if determined prior to such time, in the case of
notification to such exchange of a Rate of Interest and Interest Amount, or (ii) in all other cases, the
fourth Business Day after such determination. Where any Interest Payment Date or Interest Period Date
is subject to adjustment pursuant to Condition 2B(b)(ii), the Interest Amounts and the Interest Payment
Date so published may subsequently be amended (or appropriate alternative arrangements made with
the consent of the Trustee by way of adjustment) without notice in the event of an extension or
shortening of the Interest Period. If the Notes become due and payable under Condition 6, the accrued
interest and the Rate of Interest payable in respect of the Notes shall nevertheless continue to be
calculated as previously in accordance with Condition 2B(i) but no publication of the Rate of Interest
or the Interest Amount so calculated need be made unless the Trustee otherwise requires. The
determination of any rate or amount, the obtaining of each quotation and the making of each
determination or calculation by the Calculation Agent(s) shall (in the absence of manifest error) be
final and binding upon all parties.
(j) Determination or Calculation by Trustee: If the Calculation Agent does not at any time for any
reason determine or calculate the Rate of Interest for an Interest Accrual Period or any Interest
Amount, Installment Amount, Final Redemption Amount, Early Redemption Amount or Optional
Redemption Amount, the Trustee shall do so (or shall appoint an agent on its behalf to do so) and such
determination or calculation shall be deemed to have been made by the Calculation Agent. In doing so,
the Trustee shall apply the foregoing provisions of Condition 2B(j), with any necessary consequential
amendments, to the extent that, in its opinion, it can do so, and, in all other respects it shall do so in
such manner as it shall deem fair and reasonable in all the circumstances.
(k) Definitions: For the purposes of this Description of the Notes, unless the context otherwise requires,
the following defined terms shall have the meanings set out below:
Business Day means:
(i) in the case of a currency other than Euro, a day (other than a Saturday or Sunday) on which
commercial banks and foreign exchange markets settle payments in the principal financial center
for such currency; and/or
(ii) in the case of Euro, a day on which the TARGET system is operating (a TARGET Business
Day); and/or
(iii) in the case of a currency and/or one or more Business Centers, a day (other than a Saturday or a
Sunday) on which commercial banks and foreign exchange markets settle payments in such
currency in the Business Center(s) or, if no currency is indicated, generally in each of the Business
Centers.

219
Day Count Fraction means, in respect of the calculation of an amount of interest on any Note for any
period of time (from and including the first day of such period to but excluding the last) (whether or
not constituting an Interest Period or an Interest Accrual Period, the Calculation Period):
(i) if Actual/Actual or Actual/Actual ISDA is specified in the Pricing Supplement, the actual
number of days in the Calculation Period divided by 365 (or, if any portion of that Calculation
Period falls in a leap year, the sum of (A) the actual number of days in that portion of the
Calculation Period falling in a leap year divided by 366 and (B) the actual number of days in that
portion of the Calculation Period falling in a non-leap year divided by 365);
(ii) if Actual/365 (Fixed) is specified in the Pricing Supplement, the actual number of days in the
Calculation Period divided by 365;
(iii) if Actual/360 is specified in the Pricing Supplement, the actual number of days in the
Calculation Period divided by 360;
(iv) if 30/360, 360/360 or Bond Basis is specified in the Pricing Supplement, the number of
days in the Calculation Period divided by 360, calculated on a formula basis as follows:
Day Count Fraction = [360 x (Y2 - Y1] + [30x (M2 - M1)] + (D2 - D1)
360
where:
Y1 is the year, expressed as a number, in which the first day of the Calculation Period falls;
Y2 is the year, expressed as a number, in which the day immediately following the last day included
in the Calculation Period falls;
M1 is the calendar month, expressed as a number, in which the first day of the Calculation Period
falls;
M2 is the calendar month, expressed as a number, in which the day immediately following the last
day included in the Calculation Period falls;
D1is the first calendar day, expressed as a number, of the Calculation Period, unless such number
would be 31, in which case D1 will be 30; and
D2is the calendar day, expressed as a number, immediately following the last day included in the
Calculation Period, unless such number would be 31 and D1 is greater than 29, in which case D2
will be 30;
(v) if 30E/360 or Eurobond Basis is specified in the Pricing Supplement, the number of days in
the Calculation Period divided by 360, calculated on a formula basis as follows:
Day Count Fraction = [360 x (Y2 - Y1] + [30 x (M2 - M1)] + (D2 - D1)
360
where:
Y1 is the year, expressed as a number, in which the first day of the Calculation Period falls;
Y2 is the year, expressed as a number, in which the day immediately following the last day included
in the Calculation Period falls;
M1 is the calendar month, expressed as a number, in which the first day of the Calculation Period
falls;
M2 is the calendar month, expressed as a number, in which the day immediately following the last
day included in the Calculation Period falls;
D1 is the first calendar day, expressed as a number, of the Calculation Period, unless such number
would be 31, in which case D1 will be 30; and
D2 is the calendar day, expressed as a number, immediately following the last day included in the
Calculation Period, unless such number would be 31, in which case D2 will be 30;
(vi) if 30E/360 (ISDA) is specified in the Pricing Supplement, the number of days in the Calculation
Period divided by 360, calculated on a formula basis as follows:
Day Count Fraction = [360 x (Y2 - Y1] + [30 x (M2 - M1)] + (D2 - D1)
360

220
where:
Y1 is the year, expressed as a number, in which the first day of the Calculation Period falls;
Y2 is the year, expressed as a number, in which the day immediately following the last day included
in the Calculation Period falls;
M1 is the calendar month, expressed as a number, in which the first day of the Calculation Period
falls;
M2 is the calendar month, expressed as a number, in which the day immediately following the last
day included in the Calculation Period falls;
D1 is the first calendar day, expressed as a number, of the Calculation Period, unless (i) that day is
the last day of February or (ii) such number would be 31, in which case D1 will be 30; and
D2 is the calendar day, expressed as a number, immediately following the last day included in the
Calculation Period, unless (i) that day is the last day of February but not the Maturity Date or (ii) such
number would be 31, in which case D2 will be 30;
(vii) if Actual/Actual-ICMA is specified in the Pricing Supplement:
(a) if the Calculation Period is equal to or shorter than the Determination Period during which it falls,
the number of days in the Calculation Period divided by the product of (x) the number of days in
such Determination Period and (y) the number of Determination Periods normally ending in any
year; and
(b) if the Calculation Period is longer than one Determination Period, the sum of:
(x) the number of days in such Calculation Period falling in the Determination Period in which it
begins divided by the product of (1) the number of days in such Determination Period and
(2) the number of Determination Periods normally ending in any year; and
(y) the number of days in such Calculation Period falling in the next Determination Period
divided by the product of (1) the number of days in such Determination Period and (2) the
number of Determination Periods normally ending in any year,
where:
Determination Period means the period from and including a Determination Date in any year to but
excluding the next Determination Date.
Determination Date means the date(s) specified as such in the Pricing Supplement or, if none is so
specified, the Interest Payment Date(s).
Euro-zone means the region comprised of member states of the European Union that adopt the single
currency in accordance with the Treaty establishing the European Community, as amended.
Interest Accrual Period means the period beginning on (and including) the Interest Commencement
Date and ending on (but excluding) the first Interest Period Date and each successive period beginning
on (and including) an Interest Period Date and ending on (but excluding) the next succeeding Interest
Period Date.
Interest Amount means:
(i) in respect of an Interest Accrual Period, the amount of interest payable per Calculation Amount
for that Interest Accrual Period and which, in the case of Fixed Rate Notes, and unless otherwise
specified in the Pricing Supplement, shall mean the Fixed Coupon Amount or Broken Amount
specified in the Pricing Supplement as being payable on the Interest Payment Date ending the
Interest Period of which such Interest Accrual Period forms part; and
(ii) in respect of any other period, the amount of interest payable per Calculation Amount for that
period.
Interest Commencement Date means the Issue Date or such other date as may be specified in, or
determined in accordance with the provisions of, the Pricing Supplement.
Interest Determination Date means, with respect to a Rate of Interest and Interest Accrual Period, the
date specified as such in the Pricing Supplement or, if none is so specified, (i) the first day of such
Interest Accrual Period if the Specified Currency is Sterling or (ii) the day falling two Business Days in

221
 London for the Specified Currency prior to the first day of such Interest Accrual Period if the Specified
Currency is neither Sterling nor Euro or (iii) the day falling two TARGET Business Days prior to the
first day of such Interest Accrual Period if the Specified Currency is Euro.
Interest Payment Date means the date or dates specified as such in, or determined in accordance with
the provisions of, the Pricing Supplement.
Interest Period means the period beginning on (and including) the Interest Commencement Date and
ending on (but excluding) the first Interest Payment Date and each successive period beginning on (and
including) an Interest Payment Date and ending on (but excluding) the next succeeding Interest
Payment Date.
Interest Period Date means each Interest Payment Date unless otherwise specified in the Pricing
Supplement.
ISDA Definitions means the 2006 ISDA Definitions, as published by the International Swaps and
Derivatives Association, Inc., unless otherwise specified in the Pricing Supplement.
Rate of Interest means the rate or rates of interest payable from time to time in respect of the Note
specified in the Pricing Supplement or calculated or determined in accordance with the Conditions
and/or the provisions of the Pricing Supplement.
Redemption Amount means the Final Redemption Amount, Early Redemption Amount or Optional
Redemption Amount, as the case may be, each as specified as such in, or determined in accordance
with the provisions of, the Pricing Supplement.
Redemption Date means the Optional Redemption Date specified in the relevant Pricing Supplement
or such other date set for redemption of the Notes pursuant to Condition 7.
Reference Banks means, in the case of a determination of LIBOR, the principal London office of
four major banks in the London inter-bank market and, in the case of a determination of EURIBOR, the
principal Euro-zone office of four major banks in the Euro-zone inter-bank market, in each case
selected by the Calculation Agent or as specified in the Pricing Supplement. Reference Rate means
the rate specified as such in the Pricing Supplement.
Relevant Screen Page means such page, section, caption, column or other part of a particular
information service as may be specified in the Pricing Supplement.
Specified Currency means the currency specified as such in the Pricing Supplement or, if none is
specified, the currency in which the Notes are denominated.
TARGET System means the Trans-European Automated Real-Time Gross Settlement Express
Transfer (known as TARGET2) System which was launched on November 19, 2007 or any successor
thereto.
(l) Calculation Agent: The Republic shall procure that there shall at all times be one or more Calculation
Agents if provision is made for them in the Pricing Supplement and for so long as any Note is
outstanding (as defined in the Indenture). Where more than one Calculation Agent is appointed in
respect of the Notes, references in the Conditions to the Calculation Agent shall be construed as each
Calculation Agent performing its respective duties under the Conditions. If the Calculation Agent is
unable or unwilling to act as such or if the Calculation Agent fails duly to establish the Rate of Interest
for an Interest Accrual Period or to calculate any Interest Amount, Installment Amount, Final
Redemption Amount, Early Redemption Amount or Optional Redemption Amount, as the case may be,
or to comply with any other requirement, the Republic shall (with the prior approval of the Trustee)
appoint a leading bank or financial institution engaged in the interbank market (or, if appropriate,
money, swap or over-the-counter index options market) that is most closely connected with the
calculation or determination to be made by the Calculation Agent (acting through its principal London
office or any other office actively involved in such market) to act as such in its place. The Calculation
Agent may not resign its duties without a successor having been appointed as aforesaid.

2C. Redenomination, Renominalization and Reconventioning

Where Redenomination, Renominalization and Reconventioning is specified in the Pricing Supplement as
being Applicable in relation to Notes denominated in the currency of a member state which becomes or
announces its intention to become a Participating Member State:
(i) the Republic may, without the consent of the Holders of the Notes, on giving not less than 30 days
prior notice (Redenomination Notice) to the Holders of the Notes in accordance with Condition 13,

222
 the Trustee and the Paying Agents, with effect from (and including) the Redenomination Date, elect
that the aggregate principal amount of each Holders holding of Notes shall be redenominated into
Euro with an aggregate principal amount equal to their aggregate principal amount in the Relevant
Currency and the amount of such payment shall be rounded to the nearest Euro 0.01. The rate for the
conversion of the Relevant Currency (as defined below) into Euro shall be the rate established by the
Council of the European Union pursuant to Article 881(4) of the Treaty establishing the European
Community (the Treaty) (including compliance with rules relating to roundings in accordance with
applicable European Community regulations).
Participating Member State means a Member State of the European Communities which adopts the
Euro as its lawful currency in accordance with the Treaty.
Redenomination Date means any Interest Payment Date falling on or after the date on which the
country of the Relevant Currency becomes a Participating Member State, which is specified in the
Redenomination Notice.
Relevant Currency means the currency of denomination of the Notes shown on such Notes and
which is specified in the Pricing Supplement.
On or after the Redenomination Date, notwithstanding the other provisions of the Conditions, all
payments in respect of the Notes will be made solely in Euro, including payments of interest in respect
of a period before the Redenomination Date. Payments will be made in Euro by credit or transfer to a
Euro account (or any other account to which Euro may be credited or transferred) specified by the
payee. None of the Republic, the Trustee or any Paying Agent shall be liable to any Holder of Notes or
other person for any commissions, costs, losses or expenses in relation to or resulting from the credit or
transfer of Euro or any currency conversion or rounding effected in connection therewith;
(ii) provided that the Notes are represented by a Registered Global Security, the Republic may, without the
consent of the Holders of the Notes, on giving at least 30 days prior notice to the Holders of the Notes
in accordance with Condition 13, the Trustee and the Paying Agents, with effect from the
Redenomination Date or such later date as it may specify in that notice, procure that the denomination
of the Notes shall be Euro 0.01 and integral multiples thereof;
(iii) the Republic may, without the consent of the Holders of the Notes, on giving at least 30 days prior
notice to the Holders of the Notes in accordance with Condition 13, the Trustee and the Paying Agents,
with effect from the Redenomination Date or such later Interest Payment Date as it may specify in that
notice, elect to amend the conventions which apply in respect of the Notes.
In particular, the Republic may procure that the definition of Business Day and Financial Center in
Condition 2B shall be amended so as to be a day on which TARGET is operating, and that, if interest is
required to be calculated for a period of less than one year, it will be calculated on the basis of the
actual number of days elapsed divided by 365 (or, if any of the days on the basis of the actual number
of days elapsed divided by 365 (or, if any of the days elapsed fall in a leap year, the sum of (A) the
number of those days falling in a leap year divided by 366 and (B) the number of those days falling in a
non-leap year divided by 365) or on any other basis which is customary and which the Republic deems
appropriate.

3. Payments
(a) Registered Notes
Principal of (and premium, if any, on) the Registered Notes will be payable against surrender of such
Registered Notes at the Corporate Trust Office of the Trustee in New York City or, subject to
applicable laws and regulations, at the office outside of the United States of a Paying Agent, by check
in the Specified Currency drawn on, or by transfer to an account in the Specified Currency maintained
by the Holder with, a bank located in New York City (or, the Financial Center set out in the Pricing
Supplement). Unless specified in the Pricing Supplement, payment of interest (including Additional
Amounts (as defined below)) on Registered Notes will be made to the persons in whose name such
Registered Notes are registered at the close of business on the Clearing System Business Day
immediately prior to the date for payment where Clearing System Business Day means Monday to
Friday except December 25 and January 1; provided that if and to the extent the Republic shall default
in the payment of the interest due on such Interest Payment Date, such defaulted interest shall be paid
to the persons in whose names such Registered Notes are registered as of a subsequent record date

223
established by the Republic by notice, as provided in Condition 13, by or on behalf of the Republic to
the Holders not less than 15 days preceding such subsequent record date, such record date to be not less
than 10 days preceding the date of payment of such defaulted interest. Payment of interest on
Certificated Securities will be made (i) by a check in the Specified Currency drawn on a bank in New
York City (or, the Financial Center set out in the Pricing Supplement) mailed to the Holder at such
Holders registered address or (ii) upon application by the Holder of at least the amount specified in the
Pricing Supplement in principal amount of Certificated Securities to the Trustee not later than the close
of business on the Clearing System Business Day immediately prior to the date for payment, by wire
transfer in immediately available funds to an account maintained by the Holder with a bank in New
York City (or, the Financial Center set out in the Pricing Supplement), Payment of interest on a
Registered Global Security will be made (i) by a check in the Specified Currency drawn on a bank in
New York City delivered to the Depositary at its registered address or (ii) by wire transfer in
immediately available funds to an in the Specified Currency account maintained by the Depositary with
a bank in New York City (or, the Financial Center set out in the Pricing Supplement).
Bearer Notes
Each Paying Agent acting through its specified office outside the United States, its territories and
possessions should make payments of principal and interest in respect of Bearer Notes in accordance
with the terms of the Indenture applicable to such Bearer Notes; provided, however, that:
(i) if any Temporary Global Note, Permanent Global Note, Definitive Bearer Note, Receipt or
Coupon is presented or surrendered for payment to any Paying Agent and such Paying Agent has
delivered a replacement therefor or has been notified that the same has been replaced, such Paying
Agent should promptly notify the Republic of such presentation or surrender and shall not make
payment against the same until it is so instructed by the Republic and has received the amount to
be so paid;
(ii) a Paying Agent should not be obliged (but shall be entitled) to make payments of principal or
interest in respect of the Bearer Notes, if it is not able to establish that the Trustee has received
(whether or not at the due time) the full amount of any payment due to it;
(iii) (the relevant Paying Agent should cancel or procure the cancellation of each Temporary Global
Note, Permanent Global Note, Definitive Bearer Note (together, in the case of early redemption,
with such unmatured Receipts or Coupons or unexchanged Talons as are attached to such
Definitive Bearer Note at the time of such redemption), Receipt, Coupon or Talon, against
surrender of which it has made full payment and should (if such Paying Agent is not the Trustee)
deliver or procure the delivery of each Temporary Global Note, Permanent Global Note,
Definitive Bearer Note (together with, as aforesaid, such unmatured Receipts or Coupons or
unexchanged Talons as are attached to or surrendered with the relevant Bearer Notes), Receipt,
Coupon or Talon so cancelled by it to, or to the order of, the Trustee; or
(iv) in the case of payment of interest, principal or, as the case may be, any other amount against
presentation of a Temporary Global Note, the relevant Paying Agent should note or procure that
there is noted on the schedule thereto (or, in the absence of a schedule, on the face thereof) the
amount of such payment and, in the case of payment of principal, the remaining principal amount
of the relevant Bearer Note (which shall be the previous principal amount less the principal which
has then been paid) and shall procure the signature of such notation on its behalf.
Payments of principal and interest on Bearer Global Notes will be made in a manner specified in the
relevant Bearer Global Notes against presentation or surrender, as the case may be, of such Bearer
Global Note at the office of the relevant Paying Agent outside of the United States. A record of each
payment of principal and any payment of interest will be made on each relevant Bearer Global Note by
the relevant Paying Agent and such record will be prima facie evidence that the payment in question
has been made absent manifest error.
Payments of principal and interest on Definitive Bearer Notes will be made against presentation or
surrender, as the case may be, of such Definitive Bearer Note at the office of the relevant Paying Agent
outside of the United States. Payments of interest in respect of Definitive Bearer Notes will be made
only against surrender of Coupons and payments of principal will be made only against surrender of
Receipts, in each, at the office of the relevant Paying Agent outside of the United States.

224
 Notwithstanding the provisions of Condition 3(b) and 3(c), if payments of interest and/or principal on a
Bearer Note will be made in U.S. dollars, such payments may be made in the United States if:
(1) the Republic has appointed Paying Agents with specified offices outside the United States with
the reasonable expectation that such Paying Agents would be able to make payment in U.S.
dollars at such specified offices outside the United States of the full amount of principal and
interest on the Bearer Notes in the manner provided above when due;
(2) payment of the full amount of such principal and interest at all such specified offices outside the
United States is illegal or effectively precluded by exchange controls or other similar restrictions
on the full payment or receipt of principal and interest in U.S. dollars; and
(3) such payment is then permitted under United States law without involving, in the opinion of the
Republic, adverse tax consequences to the Republic.
A record of each payment of principal and any payment of interest will be made on each relevant
Bearer Global Notes by the relevant Paying Agent and such record will be prima facie evidence that the
payment in question has been made, absent manifest error.
No Paying Agent should exercise any Lien, right of set-off or similar claim against any person to
whom it makes any payment under Section 309(a) in respect thereof, nor shall any commission or
expenses be charged by it to any such person in respect thereof.
If a Paying Agent makes any payment in accordance with Condition 3(a)(i), it should notify the Trustee
of the amount so paid by it, the serial number of the relevant Temporary Global Note, Permanent
Global Note or Definitive Bearer Note against presentation or surrender of which payment of principal
or interest was made and the number of Coupons by maturity against which payment of interest was
made.
If at any time and for any reason a Paying Agent makes a partial payment in respect of a Temporary
Global Note, Permanent Global Note, Definitive Bearer Note, Receipt or Coupon presented for
payment to it, such Paying Agent should endorse thereon a statement indicating the amount and date of
such payment.
(b) Unless another Business Day Convention is specified in the Pricing Supplement in any case where the
date of payment of the principal of, or interest (including Additional Amounts), on the Notes shall not
be a Business Day, then payment of principal or interest (including Additional Amounts) need not be
made on such date at the relevant place of payment but may be made on the next succeeding Business
Day. Any payment made on a date other than the date on which such payment is due as set forth herein
shall have the same force and effect as if made on the date on which such payment is due, and no
interest shall accrue for the period after such date.
(c) Interest in respect of any period of less than one year shall be calculated on the basis of the Day Count
Fraction specified in the Pricing Supplement.
(d) All monies paid by or on behalf of the Republic to the Trustee or to any Paying Agent for payment of
the principal of, or interest (including Additional Amounts) on, any Note and not applied but remaining
unclaimed for two years after the date upon which such amount shall have become due and payable
shall be repaid to or for the account of the Republic by the Trustee or such Paying Agent, the receipt of
such repayment to be confirmed promptly in writing by or on behalf of the Republic. The Holder or
Holders of such Note or Notes shall thereafter look only to the Republic for the payment that such
Holder may be entitled to collect, and all liability of the Trustee or such Paying Agent with respect to
such monies shall thereupon cease.
(e) If the Republic at any time defaults in the payment of any principal of, or interest (including Additional
Amounts) on, the Notes, the Republic will pay interest on the amount in default (to the extent permitted
by law in the case of interest on interest), calculated for each day until paid, at the rate per annum (the
Default Rate) specified in the Pricing Supplement, together with Additional Amounts, if applicable.
Business Day shall mean:
(i) in the case of a currency other than Euro, a day (other than a Saturday or Sunday) on which
commercial banks and foreign exchange markets settle payments in the principal financial Center
for such currency and/or
(ii) in the case of Euro, a day on which the TARGET System is operating (a TARGET Business
Day); and/or

225
 (iii) in the case of a currency and/or one or more Business Centers a day (other than a Saturday or a
Sunday) on which commercial banks and foreign exchange markets settle payments in such
currency in the Business Center(s) or, if no currency is indicated, generally in each of the Business
Centers.

4. Taxation
(a) The Republic will make all principal and interest payments on the Notes, to the extent permitted by
law, without withholding or deducting any present or future taxes, levies, imposts, duties, assessments
or other charges of whatever nature imposed by the Republic or any of its political subdivisions
(Indonesian Taxes). If Indonesian law requires the Republic to withhold or deduct any Indonesian
Taxes, the Republic will pay the Holders of Notes such additional amounts (Additional Amounts)
necessary to ensure that they receive the same amount as they would have received without any
withholding or deduction. The Republic will not, however, pay any Additional Amounts in connection
with any Indonesian Taxes that are imposed due to any of the following:
(i) the Holder has or had some connection with the Republic other than merely owning or holding the
Notes or receiving principal and interest payments on the Notes;
(ii) the Holder has failed to present any such Notes for payment (where such presentment is required)
within 30 days after the date on which such payment has been made available to the Holder except
to the extent that the Holder thereof would have been entitled to such Additional Amounts on
presenting such Note for payment on the last of such 30 days; or
(iii) the Holder is a fiduciary or partnership or other than the sole beneficial owner of such payment to
the extent such payment would be required to be included in the income, for tax purposes, of a
beneficiary or settlor with respect to such fiduciary or a member of such partnership or a
beneficial owner who would not have been entitled to the Additional Amounts had such
beneficiary, settlor, member or beneficial owner been the Holder.

Any reference to principal or interest on the Notes includes any Additional Amounts which may be
payable on the Notes,
(b) The Republic will pay any present or future stamp, court or documentary taxes or any excise or
property taxes, charges or similar levies which arise in the Republic or any political subdivision thereof
or taxing authority thereof or therein in respect of the creation, issue, execution, delivery or registration
of the Notes or any other document or instrument referred to therein.

5. Negative Pledge Covenant of the Republic

So long as any Note, Receipt or Coupon shall remain Outstanding, the Republic will not create or permit the
creation of any mortgage, charge, lien, pledge or any other security interest on any of its present or future
assets or revenues, or any part thereof, to secure any Public External Indebtedness (as defined below), unless
the Republic shall procure that all amounts payable under the Notes are secured equally and ratably.

Indebtedness means any indebtedness for money borrowed or any guarantee of indebtedness for money
borrowed which is issued by and in the name of the Republic and is backed by the full faith and credit of the
Republic, As used in the preceding sentence, money borrowed by and in the name of the Republic shall
not include the borrowings of any state-owned-enterprise or other agency, authority, department or
instrumentality which under the laws of the Republic constitutes a juridical entity or statutory body separate
from the Republic so long as such Indebtedness does not carry the full faith and credit of the Republic.

External Indebtedness means Indebtedness which is denominated or payable by its terms in, or at the
option of the holder thereof payable in, a currency or currencies other than the lawful currency of the
Republic.

Public External Indebtedness means External Indebtedness which (i) is publicly issued or privately placed
in the capital markets, (ii) is in the form of, or represented by, bonds, debentures, notes or other similar
instruments or book entries and (iii) is, or is eligible to be, quoted, listed or ordinarily purchased and sold on
any stock exchange, automated trading system or over-the-counter or other securities market.

226
 Security Interest means any security interest, lien, pledge, mortgage, deed of trust, charge or other
encumbrance, security interest or preferential arrangement which has the practical effect of constituting a
security interest with respect to the payment of any obligations with or from the proceeds of any assets or
revenues of any kind whether in effect on the date the Indenture becomes effective or at any time thereafter.

Notwithstanding the above, the Republic may create or permit the creation of any Security Interests:
(i) securing Public External Indebtedness incurred, assumed or guaranteed by the Republic solely to
finance or refinance the acquisition, construction or development of the property over which such
Security Interest has been created or permitted to be created, provided that such Security Interest does
not extend to any other property of the Republic; however, in the case of construction, the Security
Interest may extend to: unimproved real property for the construction, any trust account into which the
proceeds of the offering creating such Public External Indebtedness may be temporarily deposited
pending use in the construction, and the revenues to be generated by the operation of, or loss or damage
to, the property to be constructed;
(ii) existing on any property or asset at the time of its acquisition (or arising after its acquisition pursuant to
an agreement entered into prior to, and not in contemplation of, such acquisition), and extensions and
renewals of such Security Interest limited to the original property or asset covered thereby and securing
any extension or renewal of the original secured financing;
(iii) arising out of the renewal, extension or replacement of any indebtedness permitted under
Condition 5(ii) above; provided, however, that the principal amount of such Public External
Indebtedness is not increased;
(iv) arising in the ordinary course of borrowing activities of the Republic to secure Public External
Indebtedness with a maturity of one year or less;
(v) in existence as of the date of the issuance of the Notes;
(vi) pursuant to any order of attachment, distraint or similar legal process arising in connection with court
proceedings which proceedings are being contested in good faith; or
(vii) arising by operation of law, provided that any such Security Interest is not created or permitted to be
created by the Republic for the purpose of securing any Public External Indebtedness.

6. Events of Default
If one or more of the following events (each an Event of Default) shall have occurred and be continuing
(whatever the reason for such Event of Default and whether it shall be voluntary or involuntary or be
effected by operation of law or pursuant to any judgment, decree or order of any court or any order, rule or
regulation of any administrative or governmental body):
(a) the Republic defaults in any payment of the principal of or interest on any of the Notes and such default
is not cured within 30 days; or
(b) the Republic defaults in the performance of any other covenant in the Notes and such default continues
for a period of 60 days after written notice thereof has been given to the Republic at the corporate trust
office of the Trustee in The City of New York by Holders representing at least 10% of the aggregate
principal amount of the Notes outstanding; or
(c) any Public External Indebtedness in a principal amount in excess of U.S.$50,000,000 (or the equivalent
amount thereof in any other currency) is accelerated (other than by optional or mandatory prepayment
or redemption); or
(d) the Republic defaults in the payment of principal or interest in excess of U.S.$50,000,000 (or the
equivalent amount thereof in any other currency) payable (whether upon maturity, acceleration or
otherwise) in connection with Public External Indebtedness beyond any applicable grace and waiver
periods and such default shall not have been cured or waived within 30 days after written notice thereof
has been given to the Republic by the Trustee or to the Republic at the Corporate Trust Office of the
Trustee in The City of New York by any Holder; or
(e) the Republic declares a moratorium with respect to the payment of principal of or interest on any
Public External Indebtedness,
then in each and every such case, upon notice in writing by the Trustee to the Republic, or upon notice in
writing by the Holders (the Demanding Holders) (acting individually or together) of not less than 25% of

227
 the aggregate Outstanding principal amount of the Notes to the Republic, with a copy to the Trustee, of any
such Event of Default and its continuance, the Trustee or the Demanding Holders may declare the principal
amount of all the Notes due and payable immediately, and the same shall become and shall be due and
payable upon the date that such written notice is received by or on behalf of the Republic, unless prior to
such date such Event or Events of Default in respect of all the Notes shall have been cured; provided that if
the Event or Events of Default giving rise to such declaration, other than the nonpayment of the principal of
the Notes which shall have become due solely by acceleration, shall have been cured, waived or otherwise
remedied as provided herein, then, and in every such case, the Holders of at least a Majority in aggregate
principal amount of the Notes then Outstanding, by written notice to the Republic and to the Trustee, may,
on behalf of all of the Holders, waive all defaults and rescind and annul such declaration and its
consequences, but no such waiver or rescission and annulment shall extend to or shall affect any subsequent
default, or shall impair any right consequent thereon. Actions by Holders pursuant to Condition 6 need not
be taken at a meeting pursuant to Condition 8.

7. Redemption
(a) Redemption by Installments and Final Redemption:
(i) Unless previously redeemed, purchased and cancelled each Note that provides for Installment
Dates and Installment Amounts shall be partially redeemed on each Installment Date at the related
Installment Amount specified in the Pricing Supplement. The outstanding nominal amount of each
such Note shall be reduced by the Installment Amount (or, if such Installment Amount is
calculated by reference to a proportion of the nominal amount of such Note, such proportion) for
all purposes with effect from the related Installment Date, unless payment of the Installment
Amount is improperly withheld or refused, in which case, such amount shall remain outstanding
until the Relevant Date relating to such Installment Amount.
(ii) Unless previously redeemed, purchased and cancelled as provided below, each Note shall be
finally redeemed on the Maturity Date specified in the Pricing Supplement at its Final Redemption
Amount (which, unless otherwise provided in the Pricing Supplement, is its nominal amount) or,
in the case of a Note falling within Condition 7(a)(i), its final Installment Amount.

(b) Early Redemption:

(i) Zero Coupon Notes:
(A) The Early Redemption Amount payable in respect of any Zero Coupon Note, the Early
Redemption Amount of which is not linked to an index and/or a formula, upon redemption of
such Note pursuant to Condition 7(c) or upon it becoming due and payable as provided in
Condition 6 shall be the Amortized Face Amount (calculated as provided below) of such
Note unless otherwise specified in the Pricing Supplement.
(B) Subject to the provisions of Condition 7(b)(i)(C), the Amortized Face Amount of any such
Note shall be the scheduled Final Redemption Amount of such Note on the Maturity Date
discounted at a rate per annum (expressed as a percentage) equal to the Amortization Yield
(which, if none is shown in the Pricing Supplement, shall be such rate as would produce an
Amortized Face Amount equal to the issue price of the Notes if they were discounted back to
their issue price on the Issue Date) compounded annually.
(C) If the Early Redemption Amount payable in respect of any such Note upon its redemption
pursuant to Condition 7(c) or upon it becoming due and payable as provided in Condition 6 is
not paid when due, the Early Redemption Amount due and payable in respect of such Note
shall be the Amortized Face Amount of such Note as defined in Condition 7(b)(i)(B), except
that such Condition shall have effect as though the date on which the Note becomes due and
payable were the Relevant Date. The calculation of the Amortized Face Amount in
accordance with Condition 7(b)(i)(C) shall continue to be made (both before and after
judgment) until the Relevant Date, unless the Relevant Date falls on or after the Maturity
Date, in which case the amount due and payable shall be the scheduled Final Redemption
Amount of such Note on the Maturity Date together with any interest that may accrue in
accordance with Condition 5(c).
(D) Where such calculation is to be made for a period of less than one year, it shall be made on
the basis of the Day Count Fraction shown in the Pricing Supplement.

228
 (ii) Other Notes: The Early Redemption Amount payable in respect of any Note (other than Notes
described in (i) above), upon redemption of such Note pursuant to Condition 7(c) or upon it
becoming due and payable as provided in Condition 6, shall be the Final Redemption Amount
unless otherwise specified in the Pricing Supplement.

(c) Redemption for Taxation Reasons:

The Notes may be redeemed at the option of the Republic in whole, but not in part, on any Interest
Payment Date (if the Note is either a Floating Rate Note or an Index Linked Note) or at any time (if the
Note is neither a Floating Rate Note nor an Index Linked Note), on giving not less than 30 nor more
than 60 days notice to the Holders (which notice shall be irrevocable) at their Early Redemption
Amount (as described in Condition 7(b)) (together with interest accrued to the date fixed for
redemption), if (i) the Republic satisfies the Trustee immediately before the giving of such notice that it
has or will become obliged to pay additional amounts as described under Condition 4 as a result of any
change in, or amendment to, the laws or regulations of the Republic of Indonesia or any political
subdivision or any authority thereof or therein having power to tax, or any change in the application or
official interpretation of such laws or regulations, which change or amendment becomes effective on or
after the date on which agreement is reached to issue the first Tranche of the Notes, and (ii) such
obligation cannot be avoided by the Republic taking reasonable measures available to it, provided that
no such notice of redemption shall be given earlier than 90 days prior to the earliest date on which the
Republic would be obliged to pay such additional amounts were a payment in respect of the Notes then
due. Before the publication of any notice of redemption pursuant to Condition 7(c), the Republic shall
deliver to the Trustee a certificate signed by two Authorized Officers of the Republic stating that the
obligation referred to in (i) above cannot be avoided by the Republic taking reasonable measures
available to it and the Trustee shall be entitled to accept such certificate as sufficient evidence of the
satisfaction of the condition precedent set out in (ii) above in which event it shall be conclusive and
binding on Holders and Couponholders.

(d) Redemption at the Option of the Republic:

If Call Option is specified in the Pricing Supplement, the Republic may, on giving not less than 15 nor
more than 30 days irrevocable notice to the Holders (or such other notice period as may be specified in
the Pricing Supplement) redeem all or, if so provided, some of the Notes on any Optional Redemption
Date. Any such redemption of Notes shall be at their Optional Redemption Amount together with
interest accrued to the date fixed for redemption. Any such redemption or exercise must relate to Notes
of a nominal amount at least equal to the Minimum Redemption Amount to be redeemed specified in
the Pricing Supplement and no greater than the Maximum Redemption Amount to be redeemed
specified in the Pricing Supplement.
All Notes in respect of which any such notice is given shall be redeemed on the date specified in such
notice in accordance with Condition 7(d).
In the case of a partial redemption the notice to Holders shall also contain the certificate numbers of the
Bearer Notes, or in the case of Registered Notes shall specify the nominal amount of Registered Notes
selected and the holder(s) of such Registered Notes, to be redeemed, which shall have been selected in
such place as the Trustee may approve and in such manner as it deems appropriate, subject to
compliance with any applicable laws and stock exchange or other relevant authority requirements.

(e) Redemption at the Option of Holders:

If Put Option is specified in the Pricing Supplement, the Republic shall, at the option of the holder of
any such Note, upon the holder of such Note giving not less than 15 nor more than 30 days notice to
the Republic (or such other notice period as may be specified in the Pricing Supplement) redeem such
Note on the Optional Redemption Date(s) at its Optional Redemption Amount together with interest
accrued to the date fixed for redemption.
To exercise such option the holder must deposit a duly completed option exercise notice (Exercise
Notice) in the form obtainable from any Paying Agent, the Registrar or any Transfer Agent (as
applicable) within the notice period with the Registrar or any Transfer Agent at its specified office, in
the case of Definitive Notes together with the relevant Definitive Note representing such Note(s). No
Note so deposited and option exercised may be withdrawn without the prior consent of the Republic.

229
 (f) Partly Paid Notes:
Partly Paid Notes will be redeemed, whether at maturity, early redemption or otherwise, in accordance
with the provisions of Condition 7 and the provisions specified in the Pricing Supplement.

8. Holders Meetings
(a) The Republic or the Trustee at any time may, and upon a request in writing (specifying the proposed
action to be taken) to the Trustee made by Holders holding not less than 10% in aggregate principal
amount of the Notes at the time Outstanding the Trustee shall, convene a meeting of Holders. The
Republic or the Trustee, as applicable, shall give notice of each meeting of Holders, setting forth:
(i) the time and place of the meeting; (ii) in general terms the topics to be discussed, or the action to be
taken, at that meeting; (iii) the date fixed by the Republic for determining the Holders and, in the case
of a multiple series aggregation, the holders of Debt Securities of each other series that are entitled to
vote on a Multiple Series Single Limb Extraordinary Resolution (as defined below) or a Multiple Series
Two Limb Extraordinary Resolution (as defined below), or to sign a Multiple Series Single Limb
Written Resolution (as defined below) or a Multiple Series Two Limb Written Resolution (as defined
below) (the Modification Record Date), which date shall be no more than five business days before
the date of any such meeting; (iv) the documentation required to be produced by a Holder in order to be
entitled to participate at the meeting or to appoint a proxy to act on the Holders behalf at the meeting;
(v) whether Condition 19(b), Condition 19(c), or Condition 19(d) shall apply and, if relevant, in
relation to which other series of Debt Securities it applies; (vi) if the proposed modification or action
relates to two or more series of Debt Securities issued by it and contemplates such series of Debt
Securities being aggregated in more than one group of Debt Securities, a description of the proposed
treatment of each such group of Debt Securities; (vii) such information that is required to be provided
by the Republic in accordance with Condition 19(f); (viii) the identity of the Aggregation Agent (as
defined below) and the Aggregation Calculation Agent (as defined below), if any, for any proposed
modification or action to be voted on at the meeting, and the details of any applicable methodology
referred to in Condition 19(g); and (ix) any additional procedures which may be necessary and, if
applicable, the conditions under which a multiple series aggregation will be deemed to have been
satisfied if it is approved as to some but not all of the affected series of Debt Securities. Such notice
shall be given not less than 30 nor more than 60 days prior to the date fixed for the meeting. To be
entitled to vote at any meeting of Holders a Person shall be, as of the date reasonably set by the
Trustee, (i) a Holder of one or more Notes or (ii) a Person appointed by an instrument in writing as
proxy by the Holder of one or more Notes. The only Persons who shall be entitled to be present or to
speak at any meeting of Holders shall be the Persons entitled to vote at such meeting and their counsel,
the Trustee and its counsel, and any representatives of the Republic and its counsel. Any procedures
governing the conduct of meetings of Holders not described in this Condition 8 shall be set by the
Trustee, if relevant, in such a manner as to facilitate any multiple series aggregation, if in relation to a
Reserved Matter (as defined below) the Republic proposes any modification to the terms and
conditions of, or action with respect to, two or more series of Debt Securities issued by it.
Debt Securities means any notes (including the Notes), bonds, debentures or other debt securities
issued by the Republic in one or more series with an original stated maturity of more than one year.
(b) Holders entitled to vote a majority in aggregate principal amount of the Notes at the time Outstanding
shall constitute a quorum at a meeting convened to discuss or vote on any matter other than a Reserved
Matter. In the absence of a quorum at any such meeting, the meeting may be adjourned for a period of
not less than ten days. Notice of reconvening of any such meeting need be given only once but must be
given not less than five days prior to the date on which the meeting is scheduled to be reconvened.
Subject to the foregoing, at the reconvening of any meeting adjourned for lack of a quorum, the
Holders entitled to vote 25% in aggregate principal amount of the Notes at the time Outstanding shall
constitute a quorum for the taking of any action set forth in the notice of the original meeting and such
quorum requirement shall be expressly stated in the notice of reconvening.
(c) Holders entitled to vote at least 75% in aggregate principal amount of the Notes at the time
Outstanding shall constitute a quorum at any meeting convened to discuss or vote on a Reserved
Matter. In the absence of a quorum at any such meeting, the meeting may be adjourned for a period of
not less than 10 days. Notice of reconvening of any such meeting need be given only once but must be
given not less than five days prior to the date on which the meeting is scheduled to be reconvened.
Further provisions for meetings of Holders, including procedures for voting, are contained in Clause 11 of
the Indenture.

230
9. Replacement, Exchange and Transfer of Notes
(a) Upon the terms and subject to the conditions set forth in the Indenture, in case any Note shall become
mutilated, defaced or be apparently destroyed, lost or stolen, the Republic will execute, and upon the
request of the Republic, the Trustee or the Registrar, as applicable, shall authenticate and deliver, a new
Note bearing a number not contemporaneously Outstanding, in exchange and substitution for the
mutilated or defaced Note, or in lieu of and in substitution for the apparently destroyed, lost or stolen
Note. In every case, the applicant for a substitute Note shall furnish to the Republic and to the Trustee
such security or indemnity as may be required by each of them to indemnify, defend and to save each
of them and any agent of the Republic or the Trustee harmless and, in every case of destruction, loss or
theft, evidence to their satisfaction of the apparent destruction, loss or theft of such Note and of the
ownership thereof. Upon the issuance of any substitute Note, the Holder of such Note, if so requested
by the Republic, shall pay a sum sufficient to cover any stamp duty, tax or other governmental charge
that may be imposed in relation thereto and any other expenses (including the fees and expenses of the
Trustee) connected with the preparation and issuance of the substitute Note.
(b) Upon the terms and subject to the conditions set forth in the Indenture, and subject to Condition 9(e), a
Definitive Note or Notes may be changed for an equal aggregate principal amount of Certificated
Securities in the Specified Denominations, and a beneficial interest in the Registered Global Security
may be exchanged for Certificated Securities in the Specified Denominations or for a beneficial interest
in another Registered Global Security by the Holder or Holders surrendering the Note or Notes for
exchange at the Corporate Trust Office of the Trustee in The City of New York or at the office of a
transfer agent, together with a written request for the exchange. Definitive Notes will only be issued in
exchange for interests in a Registered Global Security pursuant to Clauses 2.5.7 through 2.5.11 of the
Indenture. The exchange of the Notes will be made by the Trustee in The City of New York.
(c) Upon the terms and subject to the conditions set forth in the Indenture, and subject to Condition 9(e), a
Certificated Security may be transferred in whole or in a smaller Specified Denomination by the Holder
or Holders surrendering the Certificated Security for transfer at the Corporate Trust Office of the
Trustee in The City of New York or at the office of a Paying Agent accompanied by an executed
instrument of transfer substantially as set forth in Exhibit K to the Indenture. The registration of
transfer of the Notes will be made by the Trustee in The City of New York.
(d) The costs and expenses of effecting any exchange, transfer or registration of transfer pursuant to
Condition 9 will be borne by the Republic, except for the expenses of delivery (if any) not made by
regular mail and the payment of a sum sufficient to cover any stamp duty, transfer tax or other
governmental charge or insurance charge that may be imposed in relation thereto, which will be borne
by the Holder.
(e) The Trustee may decline to accept any request for an exchange or registration of transfer of any
Registered Note during the period of 15 days preceding the due date for any payment of principal of or
interest on the Registered Notes.

10. Trustee
For a description of the duties and the immunities and rights of the Trustee under the Indenture, reference is
made to the Indenture, and the obligations of the Trustee to the Holder of a Note are subject to such
immunities and rights.

11. Paying Agents; Transfer Agents; Registrar

The Republic has initially appointed the Paying Agents, transfer agents and registrar. The Republic may at
any time appoint additional or other Paying Agents, transfer agents and, in respect of Registered Notes,
registrars and terminate the appointment of those or any Paying Agents, transfer agents and registrar,
provided that while the Notes are Outstanding the Republic will maintain in London and, in respect of
Registered Notes, New York City (i) a Paying Agent, (ii) an office or agency where the Notes may be
presented for exchange, transfer and registration of transfer as provided in the Indenture and (iii) in respect
of Registered Notes, a registrar; provided, however, that in the case of Notes of any Series for which the
Specified Currency (as defined in the Indenture) in the applicable Pricing Supplement is Euro, the Republic
shall only be required to maintain a Transfer Agent and Registrar in Luxembourg. In addition, if and for so
long as the Notes are listed on the SGX-ST and the rules of such exchange so require, the Republic will
maintain a Paying Agent and Transfer Agent in Singapore. Notice of any such termination or appointment
and of any change in the office through which any Paying Agent, transfer agent or registrar will act will be
promptly given in the manner described in Condition 13.

231
12. Enforcement
Except as provided in Clause 4.6 of the Indenture, no Holder of any Notes shall have any right by virtue of
or by availing itself of any provision of the Indenture or the Notes to institute any suit, action or proceeding
in equity or at law upon or under or with respect to the Indenture or the Notes, or for any other remedy
hereunder or under the Notes, unless (a) such Holder previously shall have given to the Trustee written
notice of default and of the continuance thereof with respect to the Notes, (b) the Holders of not less than
25% in aggregate principal amount Outstanding of the Notes shall have made written request to the Trustee
to institute such action, suit or proceeding in its own name as Trustee hereunder and shall have provided to
the Trustee such reasonable indemnity as it may require against the costs, expenses and liabilities to be
incurred therein or thereby and (c) the Trustee for 60 days after its receipt of such notice, request and
provision of indemnity shall have failed to institute any such action, suit or proceeding and no direction
inconsistent with such written request shall have been given to the Trustee pursuant to Clause 4.8 of the
Indenture, it being understood and intended, and being expressly covenanted by every Holder of Notes with
every other Holder of Notes and the Trustee, that no one or more Holder shall have any right in any manner
whatever by virtue or by availing itself of any provision of the Indenture or of the Notes to affect, disturb or
prejudice the rights of any other Holder of Notes or to obtain priority over or preference to any other such
Holder, or to enforce any right under the Indenture or under the Notes, except in the manner herein provided
and for the equal, ratable and common benefit of all Holders. For the protection and enforcement of
Condition 12, each and every Holder and the Trustee shall be entitled to such relief as can be given either at
law or in equity.

13. Notices
Notices by the Republic will be in writing in the English language and will be mailed to Holders of Notes at
their registered addresses and shall be deemed to have been given on the date of such mailing. So long as the
Notes are listed on the SGX-ST and the rules of the exchange so require, notices to Holders will be valid if
published in a daily newspaper having general circulation in Singapore (which is expected to be the
Business Times). Any such notice shall be deemed to have been given on the date of such publication, or if
published more than once, on the first date on which publication is made. If publication is not practicable,
the Republic will have validly given notice if it gives notice in accordance with the rules of the SGX-ST.

14. Further Issues of Notes

The Republic may, without the consent of the Holders, create and issue additional Notes with the same
terms and conditions as the Notes (or that are the same except for the amount of the first interest payment
and for the interest paid on the Notes prior to the issuance of the additional Notes). The Republic may
consolidate such additional Notes with the outstanding Notes to form a single Series, so long as such
additional Notes do not have a greater amount of original issue discount for United States federal tax
purposes than the outstanding Notes have as of the date of the issue of such additional Notes.

15. No Sinking Fund

The Notes will not be subject to any sinking fund.

16. Authentication
A Note shall not become valid or obligatory until the certificate of authentication hereon shall have been
duly signed by the Trustee or its agent.

17. Governing Law

(a) The Notes will be governed by and interpreted in accordance with the laws of the State of New York.
(b) The Republic hereby irrevocably submits to the jurisdiction of any federal court in the Southern
District of New York or any state court in the Borough of Manhattan, The City of New York, and any
appellate court from any thereof, in any action or proceeding arising out of or relating to the Notes, and
the Republic hereby irrevocably agrees that all claims in respect of such action or proceeding may be
heard and determined in such New York state or federal court. The Republic hereby irrevocably
waives, to the fullest extent permitted by law, the defense of an inconvenient forum to the maintenance
of such action or proceeding and any right of jurisdiction in such action or proceeding on account of

232
 the place of residence or domicile of the Republic. The Republic hereby appoints the Representative
Office of Bank Indonesia in The City of New York as its authorized agent (the Process Agent) upon
which process may be served in any action by the Trustee or a Holder arising out of or based on the
Notes or the Indenture which may be instituted in any federal court in the Southern District of New
York or any state court in the Borough of Manhattan, The City of New York, and the Republic
expressly accepts the jurisdiction of any such court in respect of such action. Such appointment shall be
irrevocable until all amounts in respect of the principal and interest, due or to become due on or in
respect of all the Notes have been paid by the Republic to the Trustee or unless and until the
appointment of a successor as such Process Agent located in the Borough of Manhattan, The City of
New York, and such successors acceptance of such appointment. Service of process upon the Process
Agent at One Liberty Plaza, 165 Broadway, 31st Floor, New York, New York 10006
(fax: 1-212-732-4003), or at such other address in the United States as may be the office of the Process
Agent at the time of such service, and written notice of such service mailed or delivered to the Republic
shall be deemed in every respect service of process upon the Republic. The failure of the Process Agent
to advise the Republic of its receipt of such service shall have no effect on the validity or timeliness of
any such service. Notwithstanding the foregoing, any action by the Trustee or a Holder arising out of or
based on the Notes or the Indenture may be instituted by such Person in any competent court in the
Republic.
(c) The Republic hereby waives irrevocably, to the fullest extent permitted by law, any immunity to which
it might otherwise be entitled under the Immunities Act or otherwise in any action arising out of or
based on the Notes or the Indenture which may be instituted as provided herein in any federal court in
the Southern District of New York, any state court in the Borough of Manhattan, The City of New
York or in any competent court in the Republic; such waiver shall not be subject to retraction or
modification by the Republic. Notwithstanding anything to the contrary in the Indenture or the Notes,
such waiver of immunity shall not be deemed or interpreted to include any waiver of immunity in
respect of (i) actions brought against the Republic arising out of or based upon U.S. federal or state
securities laws; (ii) attachment under Indonesian law; (iii) present or future premises of the mission
as defined in the Vienna Convention on Diplomatic Relations signed in 1961; (iv) consular premises
as defined in the Vienna Convention on Consular Relations signed in 1963; (v) any other property or
assets used solely or mainly for governmental or public purposes in the Republic or elsewhere; or
(vi) military property or military assets or property or assets of the Republic related thereto.
(d) Notwithstanding anything to the contrary herein, none of the provisions in Condition 17 shall apply to
actions brought under the United States federal securities laws or any State securities laws.

18. Purchases of Notes by the Republic

The Republic may at any time purchase or acquire any of the Notes in any manner and at any price. The
Notes which are purchased or acquired by the Republic may, at the Republics discretion, be held, resold or
surrendered to the Trustee for cancellation.

19. Modifications
(a) Any modification, amendment, supplement or waiver (each, a Modification) to the Indenture or the
terms and conditions of the Notes may be made or given pursuant to (i) a written action of the Holders
without the need for a meeting, or (ii) by vote of the Holders taken at a meeting of Holders thereof, in
each case in accordance with the terms of this Condition 19 and the other applicable provisions of the
Notes and the Indenture. In the case of a Written Resolution (as defined below), all information to be
provided in a notice of a meeting of Holders pursuant to Condition 8(a) shall also be provided, mutatis
mutandis, to Holders in respect of such Written Resolution.
(b) Modifications of a Single Series of Notes only Modifications to the terms and conditions of the
Notes of a single Series, or to the Indenture insofar as it affects the Notes of such Series, may be made,
and future compliance therewith may be waived:
(i) in the case of any Non-Reserved Matter (as defined below), with the consent of the Republic and
(A) by way of a Single Series Extraordinary Resolution (as defined below) with the affirmative
vote of the Holders of not less than a Majority in aggregate principal amount of the Notes at
the time Outstanding that are represented at a meeting, or
(B) by way of a Single Series Written Resolution (as defined below) with the written consent of
the Holders of not less than a Majority in aggregate principal amount of the Notes at the time
Outstanding, or

233
 (ii) in the case of any Reserved Matter (as defined below), with the consent of the Republic and the
Holders of not less than 75% in aggregate principal amount of the Notes at the time Outstanding,
(A) voting at a meeting or (B) by written consent.
(c) Multiple Series Aggregation Single limb voting In relation to a proposal that includes a
Reserved Matter,
(i) any modification to the terms and conditions of, or any action with respect to, two or more series
of Debt Securities Capable of Aggregation (as defined below) may be made or taken if approved
by a Multiple Series Single Limb Extraordinary Resolution or by a Multiple Series Single Limb
Written Resolution as set out below, provided that the Uniformly Applicable condition is satisfied.
(ii) A Multiple Series Single Limb Extraordinary Resolution means a resolution considered at
combined or separate meetings of the holders of each affected series of Debt Securities Capable of
Aggregation, duly convened and held in accordance with the procedures prescribed in Condition 8
and Clause 11 of the Indenture, as supplemented if necessary, which is passed by a majority of at
least 75% of the aggregate principal amount of the Outstanding Debt Securities of all affected
series of Debt Securities Capable of Aggregation (taken in aggregate).
(iii) A Multiple Series Single Limb Written Resolution means each resolution in writing (with a
separate resolution in writing or multiple separate resolutions in writing distributed to the holders
of each affected series of Debt Securities Capable of Aggregation, in accordance with their
respective terms) or other written consent which, when taken together, has been signed or
confirmed in writing by or on behalf of the holders of at least 75% of the aggregate principal
amount of the Outstanding Debt Securities of all affected series of Debt Securities Capable of
Aggregation (taken in aggregate). Any Multiple Series Single Limb Written Resolution may be
contained in one document or several documents in substantially the same form, each signed or
confirmed in writing by or on behalf of one or more Holders of Notes or one or more holders of
each affected series of Debt Securities.
(iv) The Uniformly Applicable condition will be satisfied if:
(A) the holders of all affected series of Debt Securities Capable of Aggregation are invited to
exchange, convert, or substitute their Debt Securities, on the same terms, for (1) the same
new instrument or other consideration or (2) a new instrument, new instruments or other
consideration from an identical menu of instruments or other consideration; or
(B) the amendments proposed to the terms and conditions of each affected series of Debt
Securities Capable of Aggregation would, following implementation of such amendments,
result in the amended instruments having identical provisions (other than provisions which
are necessarily different, having regard to different currency of issuance).
(v) Any modification or action proposed under Condition 19(c)(i) may be made in respect of some
series only of the Debt Securities Capable of Aggregation and, for the avoidance of doubt, the
provisions described in this Condition 19(c) may be used for different groups of two or more
series of Debt Securities Capable of Aggregation simultaneously.
(d) Multiple Series Aggregation Two limb voting In relation to a proposal that includes a
Reserved Matter,
(i) any modification to the terms and conditions of, or any action with respect to, two or more series
of Debt Securities Capable of Aggregation may be made or taken if approved by a Multiple Series
Two Limb Extraordinary Resolution or by a Multiple Series Two Limb Written Resolution as set
out below.
(ii) A Multiple Series Two Limb Extraordinary Resolution means a resolution considered at
combined or separate meetings of the holders of each affected series of Debt Securities Capable of
Aggregation, duly convened and held in accordance with the procedures prescribed in Condition 8
and Clause 11 of the Indenture, as supplemented if necessary, which is passed by a majority of:
(A) at least 66 2 3% of the aggregate principal amount of the Outstanding Debt Securities of all
the affected series of Debt Securities Capable of Aggregation (taken in aggregate); and
(B) more than 50% of the aggregate principal amount of the Outstanding Debt Securities in each
affected series of Debt Securities Capable of Aggregation (taken individually).
(iii) A Multiple Series Two Limb Written Resolution means each resolution in writing (with a
separate resolution in writing or multiple separate resolutions in writing distributed to the holders

234
 of each affected series of Debt Securities Capable of Aggregation, in accordance with their
respective terms) or other written consent which, when taken together, has been signed or
confirmed in writing by or on behalf of the holders of:
(A) at least 66 2 3% of the aggregate principal amount of the Outstanding Debt Securities of all
the affected series of Debt Securities Capable of Aggregation (taken in aggregate); and
(B) more than 50% of the aggregate principal amount of the Outstanding Debt Securities in each
affected series of Debt Securities Capable of Aggregation (taken individually).
Any Multiple Series Two Limb Written Resolution may be contained in one document or several
documents in substantially the same form, each signed or confirmed in writing by or on behalf of
one or more Holders or one or more holders of each affected series of Debt Securities Capable of
Aggregation.
(iv) Any modification or action proposed under Condition 19(d)(i) may be made in respect of some
series only of the Debt Securities Capable of Aggregation and, for the avoidance of doubt, the
provisions described in this Condition 19(d) may be used for different groups of two or more
series of Debt Securities Capable of Aggregation simultaneously.
(e) Any Modification consented to or approved pursuant to this Condition 19 will be conclusive and
binding on all Holders of the Notes of the relevant Series and, in the case of any Multiple Series Single
Limb Extraordinary Resolution, Multiple Series Single Limb Written Resolution, Multiple Series Two
Limb Extraordinary Resolution or Multiple Series Two Limb Written Resolution, on all holders of each
other affected series of Debt Securities Capable of Aggregation, whether or not they have given such
consent or were present at a meeting of holders at which such action was taken and whether or not any
other holder or holders of the same series voted in favor thereof or signed or affirmed in writing their
consent thereto, and on all future Holders of the Notes of the relevant Series or holders of each other
affected series of Debt Securities Capable of Aggregation whether or not notation of such Modification
is made upon the Notes of that Series. Any instrument given by or on behalf of any Holder in
connection with any consent to or approval of any such Modification will be conclusive and binding on
all subsequent Holders.
(f) Prior to or on the date that the Republic proposes any Extraordinary Resolution or Written Resolution
pursuant to Condition 19(b), Condition 19(c) or Condition 19(d), the Republic shall publish in
accordance with Condition 20, and provide the Trustee with the following information:
(i) a description of the Republics economic and financial circumstances, a description of the
Republics existing debts and a description of its broad policy reform program and provisional
macroecomic outlook, in each case to the extent that such matters are, in the Republics opinion,
relevant to the request for any potential modification or action;
(ii) if the Republic shall at the time have entered into an arrangement for financial assistance with
multilateral and/or other major creditors or creditor groups and/or an agreement with any such
creditors regarding debt relief, a description of any such arrangement or agreement. Where
permitted under the information disclosure policies of the multilateral or such other creditors, as
applicable, copies of the arrangement or agreement shall be provided;
(iii) a description of the Republics proposed treatment of external debt securities that fall outside the
scope of any multiple series aggregation and its intentions with respect to any other Debt
Securities and its other major creditor groups; and
(iv) if any proposed modification or action contemplates Debt Securities being aggregated in more
than one group of Debt Securities, a description of the proposed treatment of each such group, as
required for a notice convening a meeting of the Holders of Notes in Condition 8(a).
In advance of any meeting of Holders, or in connection with any Written Resolution, the Republic shall
provide to the Trustee a copy of the certificate prepared pursuant to Condition 20(d), which includes
information on the total number of Notes which are for the time being held by or on behalf of the
Republic or by or on behalf of any person which is owned or controlled directly or indirectly by the
Republic or by any Public Sector Instrumentality of the Republic and, as such, such Notes shall be
disregarded and deemed not to remain outstanding for the purposes of ascertaining the right to attend
and vote at any meeting of Holders or the right to sign, or authorize the signature of, any Written
Resolution in respect of any such meeting. The Trustee shall make any such certificate available for
inspection during normal business hours at the specified office of the Trustee and, upon reasonable
request, will allow copies of such certificate to be taken.

235
(g) For the purpose of calculating the par value of the Notes and any affected series of Debt Securities
which are to be aggregated with the Notes in accordance with Condition 19(c) and Condition 19(d), the
Republic may appoint an aggregation calculation agent (the Aggregation Calculation Agent). The
Republic shall, with the approval of the Aggregation Agent and any appointed Aggregation Calculation
Agent, promulgate the methodology in accordance with which the Aggregation Calculation Agent will
calculate the par value of the Notes and such affected series of Debt Securities. In any such case where
an Aggregation Calculation Agent is appointed, the same person will be appointed as the Aggregation
Calculation Agent for the Notes and each other affected series of Debt Securities for these purposes,
and the same methodology will be promulgated for each affected series of Debt Securities.
(h) The Republic shall publish all Extraordinary Resolutions and Written Resolutions which have been
determined by the Aggregation Agent to have been duly passed in accordance with Condition 20(g).
(i) Any Extraordinary Resolutions or Written Resolutions which have been duly passed and which modify
any provision of, or action in respect of, the Conditions may be implemented at the Republics option
by way of a mandatory exchange or conversion of the Notes and each other affected series of Debt
Securities, as the case may be, into new Debt Securities containing the modified terms and conditions if
the proposed mandatory exchange or conversion of the Notes is notified to Holders at the time
notification is given to the Holders as to the proposed modification or action. Any such exchange or
conversion shall be binding on all Holders.
(j) For purposes of this Description of the Notes,
(i) Debt Securities Capable of Aggregation means those Debt Securities which include or
incorporate by reference Condition 8, Condition 19 and Condition 20 or provisions substantially
consistent with Condition 8, Condition 19 and Condition 20 which provide for the Debt Securities
which include such provisions to be capable of being aggregated for voting purposes with other
series of Debt Securities.
(ii) Extraordinary Resolution means any of a Single Series Extraordinary Resolution, a Multiple
Series Single Limb Extraordinary Resolution and/or a Multiple Series Two Limb Extraordinary
Resolution, as the case may be.
(iii) Non-Reserved Matter means any Modification other than a Modification constituting a
Reserved Matter.
(iv) Outstanding means, in respect of the Notes, the Notes authenticated and delivered pursuant to
the Indenture and, in respect of any other Debt Securities, Debt Securities which have been duly
authenticated and delivered by the Republic, except in each case:
(A) Notes or Debt Securities theretofore canceled by the relevant trustee or agent or delivered to
the relevant trustee or agent for cancellation or held by the relevant trustee or agent for
reissuance but not reissued by the such trustee or agent;
(B) Notes or Debt Securities that have been called for redemption in accordance with their terms
or which have become due and payable at maturity or otherwise and with respect to which
monies sufficient to pay the principal thereof (and premium, if any) and any interest thereon
shall have been made available to the relevant trustee or agent;
(C) Notes or Debt Securities in lieu of or in substitution for which other Notes or Debt Securities
shall have been duly authenticated and delivered by the Republic;
(D) Notes or Debt Securities owned or controlled, directly or indirectly, by the Republic or by
any Public Sector Instrumentality as provided in Clause 6.4.1 of the Indenture; or
(E) (for the purpose only of ascertaining the principal amount of the Notes or Debt Securities
outstanding and without prejudice to the status for any other purpose of the relevant Notes or
Debt Securities) those Bearer Notes or Debt Securities in bearer form that are alleged to have
been lost, stolen or destroyed and in respect of which replacements have been issued.
(v) Reserved Matter means any Modification that would:
(A) change the date for payment of principal or premium of, or any installment of interest on, the
Notes;
(B) reduce the principal amount or redemption price or premium, if any, payable under the
Notes;
(C) reduce the Rate of Interest on the Notes;

236
 (D) reduce the portion of the principal amount which is payable in the event of an acceleration of
the maturity of the Notes;
(E) change the currency or place of payment of any amount payable under the Notes;
(F) permit early redemption of the Notes or, if early redemption is already permitted, set a
redemption date earlier than the date previously specified or reduce the redemption price;
(G) change the definition of Outstanding or the percentage of votes required for the taking of any
action pursuant to this Condition 19 and Clause 12 of the Indenture in respect of the Notes or
modify the provisions of Clause 6.4 of the Indenture;
(H) change the obligation of the Republic to pay Additional Amounts in respect of the Notes;
(I) change the governing law provisions of the terms and conditions of the Notes;
(J) change the courts of the jurisdiction to which the Republic has submitted, the Republics
obligation to appoint and maintain an agent for service of process or the Republics waiver of
immunity, in respect of actions or proceedings brought by any Holder as set forth in the terms
and conditions of the Notes;
(K) in connection with an exchange offer, amend any Event of Default set forth in the terms and
conditions of the Notes;
(L) change the pari passu ranking provisions of the terms and conditions of the Notes;
(M) change this definition, or the definition of Extraordinary Resolution, Single Series
Extraordinary Resolution, Multiple Series Single Limb Extraordinary Resolution,
Multiple Series Two Limb Extraordinary Resolution, Written Resolution, Single Series
Written Resolution, Multiple Series Single Limb Written Resolution or Multiple Series
Two Limb Written Resolution;
(N) change the definition of Debt Securities or Debt Securities Capable of Aggregation;
(O) change the definition of Uniformly Applicable; or
(P) to exchange or substitute all the Notes for, or convert all the Notes into, other obligations or
securities of the Republic or any other person, or to modify any provision of these Conditions
in connection with any exchange or substitution of the Notes for, or the conversion of the
Notes into, any other obligations or securities of the Republic or any other person, which
would result in these Conditions as so modified being less favorable to the Holders which are
subject to the Conditions as so modified than:
(1) the provisions of the other obligations or Debt Securities of the Republic or any other
person resulting from the relevant exchange or substitution or conversion; or
(2) if more than one series of other obligations or Debt Securities results from the relevant
exchange or substitution or conversion, the provisions of the resulting series of Debt
Securities having the largest aggregate principal amount.
(vi) Reserved Matter Modification means any Modification constituting a Reserved Matter.
(vii) Single Series Extraordinary Resolution means a resolution passed in accordance with either
Condition 19(b)(i)(A) or Condition 19(b)(ii)(A) at a meeting of Holders duly convened and held
in accordance with the procedures prescribed in Condition 8.
(viii) Single Series Written Resolution means a resolution in writing or other written consent signed
or confirmed in writing in accordance with either Condition 19(b)(i)(B) or Condition
19(b)(ii)(B).
(ix) Written Resolution means any of a Single Series Written Resolution, a Multiple Series Single
Limb Written Resolution and/or a Multiple Series Two Limb Written Resolution, as the case
may be.

20. Aggregation Agent; Aggregation Procedures

(a) The Republic will appoint an aggregation agent (the Aggregation Agent) to calculate whether a
proposed modification or action has been approved by the required principal amount outstanding of
Notes, and, in the case of a multiple series aggregation, by the required principal amount of outstanding
Debt Securities of each affected series of Debt Securities. In the case of a multiple series aggregation,
the same person will be appointed as the Aggregation Agent for the proposed modification of any

237
 provision of, or any action in respect of, these Conditions or the Indenture and in respect of the terms
and conditions or relevant note documentation in respect of each other affected series of Debt
Securities. The Aggregation Agent shall be independent of the Republic.
(b) If an Extraordinary Resolution has been proposed at a duly convened meeting of Holders to modify any
provision of, or action in respect of, these Conditions or the Indenture and other affected series of Debt
Securities, as the case may be, the Aggregation Agent will, as soon as practicable after the time the
vote is cast, calculate whether holders of a sufficient portion of the aggregate principal amount of the
Outstanding Notes and, where relevant, each other affected series of Debt Securities, have voted in
favor of the Extraordinary Resolution such that the Extraordinary Resolution is passed. If so, the
Aggregation Agent will determine that the Extraordinary Resolution has been duly passed.
(c) If a Written Resolution has been proposed under the terms of these Conditions or the Indenture to
modify any provision of, or action in respect of, these Conditions or the Indenture and the terms and
conditions of other affected series of Debt Securities, as the case may be, the Aggregation Agent will,
as soon as reasonably practicable after the relevant Written Resolution has been signed or confirmed in
writing, calculate whether holders of a sufficient portion of the aggregate principal amount of the
Outstanding Notes and, where relevant, each other affected series of Debt Securities, have signed or
confirmed in writing in favor of the Written Resolution such that the Written Resolution is passed. If
so, the Aggregation Agent will determine that the Written Resolution has been duly passed.
(d) For the purposes of Condition 20(b) and Condition 20(c), the Republic will provide a certificate to the
Aggregation Agent up to three days prior to, and in any case no later than, with respect to an
Extraordinary Resolution, the date of the meeting referred to in Condition 19(b), Condition 19(c) or
Condition 19(d), as applicable, and, with respect to a Written Resolution, the date of the Written
Resolution.
The certificate shall:
(i) list the total principal amount of Notes and, in the case of a multiple series aggregation, the total
principal amount of each other affected series of Debt Securities outstanding on the Modification
Record Date; and
(ii) clearly indicate the Notes and, in the case of a multiple series aggregation, Debt Securities of each
other affected series of Debt Securities which shall be disregarded and deemed not to remain
outstanding as a consequence of Clause 6.4 of the Indenture on the Modification Record Date
identifying the holders of the Notes and, in the case of a multiple series aggregation, Debt
Securities of each other affected series of Debt Securities.
The Aggregation Agent may rely upon the terms of any certificate, notice, communication or other
document believed by it to be genuine.
(e) The Aggregation Agent will cause each determination made by it for the purposes of this Condition 20
to be notified to the Trustee and the Republic as soon as practicable after such determination. Notice
thereof shall also promptly be given to the Holders.
(f) All notifications, opinions, determinations, certificates, calculations, quotations and decisions given,
expressed, made or obtained for the purposes of this Condition 20 by the Aggregation Agent and any
appointed Aggregation Calculation Agent will (in the absence of manifest error) be binding on the
Republic, the Trustee and the Holders of the Notes and (subject as aforesaid) no liability to any such
person will attach to the Aggregation Agent or the Aggregation Calculation Agent in connection with
the exercise or non-exercise by it of its powers, duties and discretions for such purposes.
(g) The Republic will publish all notices and other matters required to be published pursuant to these
Conditions and the Indenture including any matters required to be published pursuant to Condition 6,
Condition 8 and this Condition 20:
(i) on the following websites: (A) www.djpu.kemenkeu.go.id; and (B) www.kemenkeu.go.id;
(ii) (A) with respect to the Notes of any Series for which the clearing system is specified in the
applicable Pricing Supplement as DTC, through DTC or (B) with respect to the Notes of any
Series for which the clearing system is specified in the applicable Pricing Supplement as
Euroclear and Clearstream, through Euroclear and Clearstream;
(iii) in such other places and in such other manner as may be required by applicable law or regulation;
and
(iv) in such other places and in such other manner as may be customary.

238
21. Transfers
(a) Restricted Global Security
Unless otherwise specified in the applicable Pricing Supplement, if (1) the owner of a beneficial
interest in a Restricted Global Security wishes to transfer such interest (or portion thereof) to a
Non-U.S. Person pursuant to Regulation S and (2) such Non-U.S. Person wishes to hold its interest in
the Note through a beneficial interest in the Unrestricted Global Security, (x) upon receipt by the
Registrar, as Transfer Agent, of:
(i) instructions from the Holder of the Restricted Global Security directing the Custodian and
Registrar to credit or cause to be credited a beneficial interest in the Unrestricted Global Security
equal to the principal amount of the beneficial interest in the Restricted Global Security to be
transferred, and
(ii) a certificate from the transferor as to compliance with Regulation S in form and substance
required by the Indenture,
and (y) subject to the rules and procedures of DTC and the common depositary for Euroclear and
Clearstream, the Registrar, as Transfer Agent, shall instruct DTC to increase the Unrestricted Global
Security and decrease the Restricted Global Security by such amount in accordance with the foregoing,
and the Registrar, as Transfer Agent, shall instruct the common depositary for Euroclear and
Clearstream, as the case may be, concurrently with such reduction, to increase the principal amount of
the Unrestricted Global Security of the same Series by the aggregate principal amount of the beneficial
interest in the Restricted Global Security to be so exchanged or transferred, and to credit or cause to be
credited to the account of the person specified in such instructions a beneficial interest in such
Unrestricted Global Security equal to the reduction in the principal amount of such Restricted Global
Security.
(b) Unrestricted Global Security
Unless otherwise specified in the applicable Pricing Supplement, if the owner of an interest in a
Unrestricted Global Security wishes to transfer such interest (or any portion thereof) to a QIB pursuant
to Rule 144A prior to the expiration of the Distribution Compliance Period therefor, (x) upon receipt by
the Registrar, as Transfer Agent, of:
(i) instructions from the Holder of the Unrestricted Global Security directing the Custodian and
Registrar to credit or cause to be credited a beneficial interest in the Restricted Global Security
equal to the principal amount of the beneficial interest in the Unrestricted Global Security to be
transferred, and
(ii) a certificate from the transferor as to compliance with Rule 144A in form and substance required
by the Indenture,
and (y) in accordance with the rules and procedures of DTC, the common depositary for Euroclear and
Clearstream, the Registrar, as Transfer Agent, shall instruct DTC to increase the Restricted Global
Security and decrease the Unrestricted Global Security by such amount in accordance with the
foregoing and the Registrar, as Transfer Agent, shall instruct the common depositary for Euroclear and
Clearstream, or the custodian for DTC, as applicable, to reduce the principal amount of the
Unrestricted Global Security by the aggregate principal amount of the beneficial interest in such
Unrestricted Global Security or to be exchanged or transferred, and the Registrar, as Transfer Agent,
shall instruct DTC, concurrently with such reduction, to increase the principal amount of such
Restricted Global Security by the aggregate principal amount of the beneficial interest in such
Unrestricted Global Security to be so exchanged or transferred, and to credit or cause to be credited to
the account of the person specified in such instructions a beneficial interest in the Restricted Global
Security equal to the reduction in the principal amount of such Unrestricted Global Security.
(c) Other Transfers or Exchanges
Any transfer of Restricted Global Securities not described above (other than a transfer of a beneficial
interest in a Global Security that does not involve an exchange of such interest for a Certificated
Security or a beneficial interest in another Global Security, which must be effected in accordance with
applicable law and the rules and procedures of DTC, the common depositary for Euroclear and
Clearstream, but is not subject to any procedure required by the Indenture) shall be made only upon
receipt by the Registrar of such opinions of counsel, certificates and/or other information reasonably
required by and satisfactory to it in order to ensure compliance with the Securities Act or in accordance
with the above. Certificated Securities will not be exchangeable for Bearer Notes.

239
 USE OF PROCEEDS

Unless otherwise specified in the Pricing Supplement for any Tranche or Series of Notes, the Republic will
use the net proceeds from the sale of Notes in such Tranche or Series offered pursuant to the Program to meet
part of its general financing requirements.

240
 FORMS OF THE NOTES

The Notes of each Series will be in bearer or registered form.

Unless otherwise provided with respect to a particular Series, Notes of each Series sold outside the United
States in reliance on Regulation S will be represented by interests in a Temporary Global Note (as defined
below), Permanent Global Note (as defined below) or by a permanent global note in registered form, without
interest coupons (an Unrestricted Global Security), which may be deposited with a (i) common depositary for,
and registered in the name of a nominee of, Euroclear and Clearstream or (ii) with a custodian for, and registered
in the name of a nominee of, DTC. With respect to all offers or sales by a Dealer of an unsold allotment or
subscription, beneficial interests in a Temporary Global Note or Bearer Notes issued in definitive form
(Definitive Bearer Note) may not be offered or sold to, or for the account or benefit of, a U.S. person (unless
pursuant to the Securities Act or an exemption therefrom) and may be held only through Euroclear and
Clearstream, as the case may be. Temporary Global Notes, Permanent Global Notes and Unrestricted Global
Securities will be exchangeable for Bearer Definitive Notes or Certificated Securities, as applicable, only in
limited circumstances as more fully described in Global Clearance and Settlement Systems.

Notes of each Series to be issued in registered form (Registered Notes) may only be offered and sold in the
United States in private transactions: (i) to QIBs or (ii) to Institutional Accredited Investors who agree to
purchase the Notes for their own account and not with a view to the distribution thereof. Registered Notes of
each Series sold in private transactions to QIBs pursuant to Rule 144A will, unless specified in the applicable
Pricing Supplement, be represented by a restricted permanent global note in registered form, without coupons
(a Restricted Global Security) deposited (i) with a common depositary for, and registered in the name of a
nominee of, Euroclear and Clearstream or (ii) with a custodian for, and registered in the name of a nominee of,
DTC. Restricted Global Securities will be exchangeable for Certificated Securities only in limited circumstances
as more fully described in Global Clearance and Settlement Systems.

Registered Notes of each Series sold to Institutional Accredited Investors will be in definitive form,
registered in the name of the holder thereof, such Notes are defined as 4(a)(2) Notes in the Indenture. Notes in
fully- registered certificated form (other than a global security (as defined below) evidencing all or part of a
Series of Notes (each a Certificated Security) will, at the request of the holder (except to the extent otherwise
indicated in the applicable Pricing Supplement), be issued in exchange for interests in an Unrestricted Global
Security or a Restricted Global Security (each a Registered Global Security) upon compliance with the
procedures for exchange as described in the Indenture.

Notes of each Series to be issued in bearer form (Bearer Notes) will be initially represented by either a
temporary global Note (a Temporary Global Note) or a permanent global Note (a Permanent Global Note and
together with a Temporary Global Note, a Bearer Global Note) that will be deposited on the issue date thereof
with a common depositary on behalf of Euroclear and Clearstream or any other agreed clearance system
compatible with Euroclear and Clearstream.

Each Permanent Global Note and Definitive Bearer Note, Receipt, Coupon and Talon will bear the
following legend: Any United States person who holds this obligation will be subject to limitations under the
United States income tax laws, including the limitations provided in Sections 165(j) and 1287(a) of the Internal
Revenue Code.

Bearer Notes will be assigned a Common Code and relevant ISIN (as applicable). Registered Notes will be
assigned (as applicable) a Common Code, ISIN and CUSIP number. If a further Series is issued in the case of a
Temporary Global Note, the Trustee shall arrange that the Notes of such Series shall be assigned (as applicable) a
CUSIP number, Common Code and a relevant ISIN that are different from the CUSIP number, Common Code
and relevant ISIN, as the case may be, assigned to Notes of any other Series until such time as is required by
applicable law. At the end of such period, the CUSIP number, Common Code and relevant ISIN, as the case may
be, thereafter applicable to the Notes of the relevant Series will be notified by the Trustee to the relevant Dealers.

Each Temporary Global Note will be exchangeable, free of charge to the Holder, on or after its Exchange
Date:

(a) if the relevant Pricing Supplement indicates that such Temporary Global Note is issued in compliance
with the C Rules or in a transaction to which TEFRA is not applicable (as to which, see Subscription
and Sale), in whole, but not in part, for the Definitive Bearer Notes described below; and

241
 (b) in whole or in part upon certification as to non-U.S. beneficial ownership in the form set out in the
Indenture for interests in a Permanent Global Note or, if so provided in the relevant Pricing
Supplement, for Definitive Bearer Notes.

Each Permanent Global Note will be exchangeable, free of charge to the Holder, on or after its Exchange
Date in whole but not in part for Definitive Bearer Notes:
(a) an Event of Default has occurred in respect of any Note of the relevant Series; or
(b) if the Permanent Global Note is held on behalf of Euroclear or Clearstream, Luxembourg or an
Alternative Clearing System and any such clearing system is closed for business for a continuous
period of 14 days (other than by reason of holidays, statutory or otherwise) or announces an intention
permanently to cease business or in fact does so.

In the event that a Bearer Global Note is exchanged for Definitive Bearer Notes, such Definitive Bearer
Notes shall be issued in Specified Denomination(s) only. A Holder of Notes with a principal amount of less than
the minimum Specified Denomination will not receive a definitive Note in respect of such holding and would
need to purchase a principal amount of Notes such that it holds an amount equal to one or more Specified
Denominations.

Exchange Date means the later of (i) 40 days after the Issue Date and (ii) the expiration of the period that
ends 40 days after completion of the distribution of the relevant Series of Notes, as certified by the relevant
Dealer(s) to the Republic and the Trustee and is a day (other than a Saturday or Sunday) on which banks in the
city where the Bearer Global Note is deposited is open for business.

All Notes will be issued pursuant to the Indenture.

No beneficial owner of an interest in a Global Security will be able to exchange or transfer that interest,
except in accordance with the applicable procedures of DTC, Euroclear and/or Clearstream, in each case, to the
extent applicable.

So long as any Notes are listed on the SGX-ST and the rules of the SGX-ST so require, the Republic shall
appoint and maintain a paying agent in Singapore, where such Notes may be presented or surrendered for
payment or redemption, in the event that the Global Security representing such Notes is exchanged for definitive
Notes. In addition, an announcement of such exchange will be made through the SGX-ST. Such announcement
will include all material information with respect to the delivery of the definitive Notes, including details of the
paying agent in Singapore.

242
 FORM OF PRICING SUPPLEMENT

Set out below is the form of Pricing Supplement that will be completed for each Tranche of Notes issued
under the Program.

Pricing Supplement dated []

REPUBLIC OF INDONESIA

Issue of [Aggregate Nominal Amount of Series] [Title of Notes]

(the Notes)
under its U.S.$30,000,000,000 Global Medium Term Note Program

This document constitutes the Pricing Supplement relating to the issue of Notes described herein.

Terms used herein shall be deemed to be defined as such for the purposes of the Conditions set forth in the
Offering Circular dated [] [and the supplemental Offering Circular dated []]. This Pricing Supplement contains
the final terms of the Notes and must be read in conjunction with such Offering Circular [as so supplemented].

[The following alternative language applies if the first issue of a Series which is being increased was issued
under Offering Circular with an earlier date.

Terms used herein shall be deemed to be defined as such for the purposes of the Conditions (the
Conditions) set forth in the Offering Circular dated [original date]. This Pricing Supplement contains the final
terms of the Notes and must be read in conjunction with the Offering Circular dated [current date] [and the
supplemental Offering Circular dated []], save in respect of the Conditions which are extracted from the
Offering Circular dated [original date] and are attached hereto.]

[Include whichever of the following apply or specify as Not Applicable (N/A). Note that the numbering
should remain as set out below, even if Not Applicable is indicated for individual paragraphs or sub-
paragraphs. Italics denote directions for completing the Pricing Supplement.]

1. Issuer: Republic of Indonesia (the Republic)

2. [(a)] Series Number: [ ]

(b) [Tranche]: [ ]

3. Specified Currency or Currencies: [ ]

4. Aggregate Nominal Amount: [ ]

5. [(a)] Issue Price: [ ]% of the Aggregate Nominal Amount [plus

accrued interest from [insert date] (in the case of
fungible issues only, if applicable)]

(b) [Net proceeds: [ ] (Required only for listed issues)]

6. (a) Specified Denominations: [ ]

(b) Calculation Amount: [ ]

7. (a) Issue Date: [ ]

(b) Interest Commencement Date: [Specify/Issue date/Not Applicable]

8. Maturity Date: [specify date or (for Floating Rate Notes) Interest

Payment Date falling in or nearest to the relevant
month and year]

243
9. (a) Interest Basis: [% Fixed Rate]

[[specify reference rate] +/- % Floating Rate]

[Zero Coupon]

[Other (specify)]

(further particulars specified below)

(b) Default Rate: [[ ] (specify/None]

10. Redemption/Payment Basis: [Redemption at par]

[Partly Paid]

[Installment]

[Other (specify)]

11. Change of Interest or Redemption/ Payment Basis: [Specify details of any provision for convertibility
of Notes into another interest or redemption/
payment basis]

12. Put/Call Options: [Investor Put]

[Issuer Call]

[(further particulars specified below)]

13. (a) Status of the Notes: [Senior]

(b) Guarantee: [Not Applicable/give details]

14. Listing: [[ ] (specify)/None]

15. Method of distribution: [Syndicated/Non-syndicated]

PROVISIONS RELATING TO INTEREST (IF ANY) PAYABLE

16. Fixed Rate Note Provisions: [Applicable/Not Applicable]

(If not applicable, delete the remaining sub-
paragraphs of this paragraph)

(a) Rate[(s)] of Interest: [ ]% per annum [payable [annually/semi-annually/

quarterly/monthly] in arrears]

(b) Interest Payment Date(s): [ ] in each year [adjusted in accordance with

[specify Business Day Convention and any
applicable Business Center(s) for the definition of
Business Day]/not adjusted]

(c) Fixed Coupon Amount[(s)]: [ ] per Calculation Amount

(d) Broken Amount(s): [ ] per Calculation Amount, payable on the

Interest Payment Date falling [in/on] [ ]

(e) Day Count Fraction: [30/360/Actual/Actual (ICMA/ISDA)/other]

(f) [Determination Dates: [ ] in each year (insert regular interest payment

dates, ignoring issue date or maturity date in the
case of a long or short first or last coupon. N.B.
only relevant where Day Count Fraction is Actual/
Actual (ICMA))]

244
 (g) Other terms relating to the method of [Not Applicable/give details]
calculating interest for Fixed Rate Notes:

17. Floating Rate Note Provisions: [Applicable/Not Applicable]

(If not applicable, delete the remaining sub-
paragraphs of this paragraph)

(a) Interest Period(s): [ ]

(b) Specified Interest Payment Dates: [ ]

(c) Interest Period Date [ ]

(Not applicable unless different from Interest
Payment Date)

(d) Business Day Convention: [Floating Rate Convention/Following Business Day

Convention/Modified Following Business Day
Convention/Preceding Business Day Convention/
other (give details)]

(e) Business Center(s): [ ]

(f) Manner in which the Rate(s) of Interest is/are [Screen Rate Determination/ISDA Determination/
to be determined: other (give details)]

(g) Party responsible for calculating the Rate(s) [ ]

of Interest and Interest Amount(s) (if not the
[Agent]):

(h) Screen Rate Determination:

Reference Rate: [ ]

Interest Determination Date(s): [ ]

Relevant Screen Page: [ ]

(i) ISDA Determination:

Floating Rate Option: [ ]

Designated Maturity: [ ]

Reset Date: [ ]

(j) Margin(s): [+/-][ ]% per annum

(k) Minimum Rate of Interest: [ ]% per annum

(l) Maximum Rate of Interest: [% per annum

(m) Day Count Fraction: [ ]

(n) Fall back provisions, rounding provisions, [ ]

denominator and any other terms relating to
the method of calculating interest on Floating
Rate Notes, if different from those set out in
the Conditions:

245
18. Zero Coupon Note Provisions: [Applicable/Not Applicable]
(If not applicable, delete the remaining sub-
paragraphs of this paragraph)

(a) Amortization Yield: [ ]% per annum

(b) Any other formula/basis of determining [ ]

amount payable:

19. Index-Linked Interest Note Provisions: [Applicable/Not Applicable]

(If not applicable, delete the remaining sub-
paragraphs of this paragraph)

(a) Index/Formula: [give or annex details]

(b) Party responsible for calculating the Rate(s) of [ ]

Interest and/or Interest Amount(s) (if not the
[Agent]):

(c) Provisions for determining Rate of Interest [ ]

and/or Interest Amount where calculation by
reference to Index and/or Formula is
impossible or impracticable or otherwise
disrupted:

(d) Interest Periods: [ ]

(e) Specified Interest Payment Dates: [ ]

(f) Business Day Convention: [Floating Rate Convention/Following Business Day

Convention/Modified Following Business Day
Convention/Preceding Business Day Convention/
other (give details)]

(g) Business Center(s): [ ]

(h) Minimum Rate of Interest: [ ]% per annum

(i) Maximum Rate of Interest: [ ]% per annum

(j) Day Count Fraction: [ ]

20. Dual Currency Note Provisions: [Applicable/Not Applicable]

(If not applicable, delete the remaining sub-
paragraphs of this paragraph)

(a) Rate of Exchange/method of calculating Rate [give details]

of Exchange:

(b) Party, if any, responsible for calculating the [ ]

Rate(s) of Interest and Interest Amount(s) (if
not the [Agent]):

(c) Provisions applicable where calculation by [ ]

reference to Rate of Exchange impossible or
impracticable:

(d) Person at whose option Specified [ ]

Currency(ies) is/are payable:

246
21. Default Rate: [ ]% per annum

PROVISIONS RELATING TO REDEMPTION

22. Call Option: [Applicable/Not Applicable]

(If not applicable, delete the remaining sub-
paragraphs of this paragraph)

(a) Optional Redemption Date(s): [ ]

(b) Optional Redemption Amount(s) of each Note [ ] per Calculation Amount

and specified denomination method, if any, of
calculation of such amount(s):

(c) If redeemable in part:

Minimum Redemption Amount: [ ] per Calculation Amount

Maximum Redemption Amount: [ ] per Calculation Amount

(d) Notice period: [ ]

23. Put Option: [Applicable/Not Applicable]

(If not applicable, delete the remaining sub-
paragraphs of this paragraph)

(a) Optional Redemption Date(s): [ ]

(b) Optional Redemption Amount(s) of each Note [ ] per Calculation Amount

and method, if any, of calculation of such
amount(s):

(c) Notice period: [ ]

24. Final Redemption Amount of each Note: [ ] per Calculation Amount

25. Early Redemption Amount: [ ]

Early Redemption Amount(s) per Calculation

Amount payable on redemption for taxation reasons
or on event of default and/or the method of
calculating the same (if required or if different from
that set out in the Conditions):

GENERAL PROVISIONS APPLICABLE TO THE

NOTES

26. (a) Form of Notes: [Bearer Notes:

[Temporary Global Note exchangeable for a

Permanent Global Note which is exchangeable for
Definitive Notes in the limited circumstances
specified in the Permanent Global Note]
[Temporary Global Note exchangeable for
Definitive Notes on [ ] days notice]

[Permanent Global Note exchangeable for

Definitive Notes in the limited circumstances
specified in the Permanent Global Note]

247
 (N.B. The exchange upon notice/at any time options
should not be expressed to be applicable if the
Specified Denomination of the Notes in paragraph 6
includes language substantially to the following
effect: EUR50,000 and integral multiples of
EUR1,000 in excess thereof up to and including
EUR99,000. In addition, the limited
circumstances specified in the Permanent Global
Note option may have to be amended to permit
such Specified Denomination construction.
Furthermore, such Specified Denomination
construction is not permitted in relation to any issue
of Notes which is to be represented on issue by a
Temporary Global Note exchangeable for Definitive
Notes.)]

[Registered Notes]

(b) Applicable TEFRA exemption: [C Rules/D Rules (or in respect of C Rules or D

Rules, any successor U.S. Treasury Regulation
section, including without limitation, regulations
issued in accordance with Internal Revenue Service
Notice 2012-20 or otherwise in connection with the
United States Hiring Incentives to Restore
Employment Act of 2010)/Not Applicable]

27. Talons for future Coupons or Receipts to be [Yes/No. If yes, give details]
attached to Definitive Bearer Notes (and dates on
which such Talons mature):

28. Financial Center(s) or other special provisions [Not Applicable/give details.

relating to Payment Dates: Note that this paragraph relates to the date and
place of payment, and not interest period end dates,
to which sub-paragraphs 16(b), 17(d), and 19(g)
relate]

29. Details relating to Partly Paid Notes: amount of [Not Applicable/give details]
each payment comprising the Issue Price and date
on which each payment is to be made and
consequences (if any) of failure to pay, including
any right of the Republic to forfeit the Notes and
interest due on late payment:

30. Details relating to Installment Notes: amount of [Not Applicable/give details]

each installment, date on which each payment is to
be made:

31. Redenomination, Renominalization and [Not Applicable/The provisions [in Condition 2C]
Reconventioning: [annexed to this Pricing Supplement] apply]

32. Consolidation provisions: [Not Applicable/The provisions [in Condition ]

[annexed to this Pricing Supplement] apply]

33. Other terms or special conditions: [Not Applicable/give details]

DISTRIBUTION

34. (a) If syndicated, names of Managers: [Not Applicable/give names]

(b) Stabilizing Manager (if any): [Not Applicable/give name]

248
35. If non-syndicated, name of Dealer: [Not Applicable/give name]

36. Additional selling restrictions: [Not Applicable/give details]

OPERATIONAL INFORMATION

37. ISIN Code: [ ]

38. Common Code: [ ]

39. Any clearing system(s) other than Euroclear Bank [Not Applicable/give name(s) and number(s)]
S.A./N.V. and Clearstream Banking socit
anonyme and the relevant identification number(s):

40. Delivery: Delivery [against/free of] payment

41. Additional Paying Agent(s) (if any): [ ]

[PURPOSE OF PRICING SUPPLEMENT

This Pricing Supplement comprises the final terms required for issue and admission to the Official List of
the Singapore Exchange Securities Trading Limited of the Notes described herein pursuant to the
U.S.$30,000,000,000 Global Medium Term Note Program of the Republic of Indonesia.]

RESPONSIBILITY
The Republic accepts responsibility for the information contained in this Pricing Supplement.

Signed on behalf of
REPUBLIC OF INDONESIA:

By :
Duly authorized

249
 GLOBAL CLEARANCE AND SETTLEMENT SYSTEMS

The information set out below is subject to any change in or reinterpretation of the rules, regulations and
procedures of DTC, Euroclear and Clearstream (together, the Clearing Systems) currently in effect. Investors
wishing to use the facilities of any of the Clearing Systems are advised to confirm the continued applicability of
the rules, regulations and procedures of the relevant Clearing System. The Republic, any Arranger, Dealer,
Trustee, Agent and party to the Indenture will not have any responsibility or liability for any aspect of the
records relating to, or payments made on account of, beneficial ownership interests in the Notes held through the
facilities of any Clearing System or for maintaining, supervising or reviewing any records relating to such
beneficial ownership interests

The relevant Pricing Supplement will specify the Clearing System(s) applicable for each Series.

DTC
DTC is a limited purpose trust company organized under the laws of the State of New York, a member of
the United States Federal Reserve System, a clearing corporation within the meaning of the New York
Uniform Commercial Code and a clearing agency registered pursuant to Section 17A of the United States
Securities Exchange Act of 1934, as amended. DTC was created to hold securities for its participants and to
facilitate the clearance and settlement of securities transactions among participants in such securities through
electronic book-entry changes in accounts of the participants, thereby eliminating the need for physical
movement of security certificates. Participants include securities brokers and dealers, banks, trust companies,
clearing corporations and certain other organizations. DTC is owned by a number of its participants and by the
New York Stock Exchange, Inc., the American Stock Exchange, Inc. and the National Association of Securities
Dealers, Inc. Indirect access to DTC is available to others, such as banks, brokers, dealers and trust companies
that clear through or maintain a custodial relationship with a DTC participant either directly or indirectly.

DTC will take any action permitted to be taken by the holder of a beneficial interest in a Global Security
(including, without limitation, the presentation of a Global Security for exchange) only at the direction of one or
more participants to whose account with DTC interests in such Registered Global Security are credited and only
in respect of such portion of the aggregate principal amount of Notes in respect of which such participant or
participants has or have given such direction. If an Event of Default under the Notes occurs, DTC will exchange
the Global Security for Certificated Securities bearing the appropriate legend, which it will distribute to the
relevant participants. DTC makes payments only in U.S. dollars.

Euroclear and Clearstream

Each of Euroclear and Clearstream holds securities for their account holders and facilitates the clearance
and settlement of securities transactions by electronic book-entry transfer between their respective account
holders, thereby eliminating the need for physical movements of certificates and any risks from lack of
simultaneous transfers of securities.

Euroclear and Clearstream each provides various services including safekeeping, administration, clearance
and settlement of internationally traded securities and securities lending and borrowing. Euroclear and
Clearstream each also deals with domestic securities markets in several countries through established depository
and custodial relationships. Euroclear and Clearstream have established an electronic bridge between their two
systems which enables their respective account holders to settle trades with each other.

Account holders in Euroclear and Clearstream are financial institutions throughout the world, including
underwriters, securities brokers and dealers, banks, trust companies, clearing corporations and certain other
organizations. Indirect access to both Euroclear and Clearstream is available to other institutions that clear
through or maintain a custodial relationship with an account holder of either system.

An account holders contractual relations with either Euroclear or Clearstream are governed by the
respective rules and operating procedures of Euroclear or Clearstream and any applicable laws.

Both Euroclear and Clearstream act under those rules and operating procedures only on behalf of their
respective account holders, and have no record of or relationship with persons holding through their respective
holders.

250
Book-Entry Ownership of Global Securities
Registered Notes
The Republic will make applications to (i) Euroclear and/or Clearstream, (ii) DTC or (iii) such other
Clearing System(s) as are specified in the relevant Pricing Supplement for acceptance in their respective
bookentry settlement systems in respect of each Tranche of Notes to be represented by an Unrestricted Global
Security. Each Unrestricted Global Security will have an ISIN or Common Code, and will be subject to
restrictions on transfer contained in a legend appearing on the front of such Note, as set out under Notice to
Purchasers and Holders of Notes and Transfer Restrictions.

The Republic will make applications to (i) Euroclear and/or Clearstream, (ii) the DTC or (iii) such other
Clearing System(s) as are specified in the relevant Pricing Supplement for acceptance in their respective
bookentry settlement systems in respect of each Tranche of Notes to be represented by a Restricted Global
Security. Each Restricted Global Security will have a CUSIP number. Each Restricted Global Security will be
subject to restrictions on transfer contained in a legend appearing on the front of such Note, as set out under
Notice to Purchasers and Holders of Notes and Transfer Restrictions.

In the case of a Tranche of Notes for which the clearing system is specified in the applicable Pricing
Supplement as DTC, the custodian with whom the Global Securities are deposited (the Custodian) and DTC will
electronically record the principal amount of the Notes represented by a Global Security held within the DTC
system. Investors may hold interests in a Restricted Global Security directly through DTC if they are participants
in such system, or indirectly through organizations that are participants in such system.

Payments of principal and interest in respect of Global Securities registered in the name of DTCs nominee,
will be to or to the order of its nominee as the registered holder of such Global Security. The Republic expects
that the nominee will, upon receipt of any such payment, immediately credit DTC participants accounts with any
such payments denominated in U.S. dollars in amounts proportionate to their respective beneficial interests in the
principal amount of the relevant Global Security as shown on the records of DTC or its nominee. In the case of
any such payments which are denominated otherwise than in U.S. dollars, payment of such amounts will be made
to the Paying Agent on behalf of the nominee who will make payment of all or part of the amount to the
beneficial holders of interests in such Global Securities directly, in the currency in which such payment was
made and/or cause all or part of such payment to be converted into U.S. dollars and credited to the relevant
participants DTC account as aforesaid, in accordance with instructions received from DTC. The Republic also
expects that payments by DTC participants to owners of beneficial interests in such Global Securities held
through such DTC participants will be governed by standing instructions and customary practices, as is now the
case with securities held for the accounts of customers registered in the names of nominees for such customers.
Such payments will be the responsibility of such DTC participants. Neither the Republic, the Trustee nor any
agent will have any responsibility or liability for any aspect of the records relating to or payments made on
account of ownership interests in the Global Securities or for maintaining, supervising or reviewing any records
relating to such ownership interests.

Bearer Notes
Bearer Notes held outside the United States may be held in book-entry form through Clearstream or
Euroclear. In respect of Bearer Notes, as may be specified in the applicable Pricing Supplement, a Temporary
Global Note and/or a Permanent Global Note in bearer form without coupons will be deposited with a common
depositary for Euroclear and Clearstream. Transfers of interests in a Temporary Global Note or a Permanent
Global Note will be made in accordance with customary Euromarket practice.

Individual Certificated Securities

Registration of title to Notes in a name other than its nominee or a depositary for Euroclear and Clearstream
or DTC will not be permitted unless (i) an event of default with respect to such Series has occurred and is
continuing, (ii) in the case of any Series for which the clearing system is specified in the applicable Pricing
Supplement as DTC, DTC notifies us that it is no longer willing or able to discharge properly its responsibilities
as depositary with respect to the Global Securities, or ceases to be a clearing agency registered under the U.S.
Securities Exchange Act of 1934, as amended, or is at any time no longer eligible to act as such and the Republic
is unable to locate a qualified successor within 90 days of receiving notice of such ineligibility on the part of
DTC; (iii) in the case of any Series for which the clearing system is specified in the applicable Pricing
Supplement as Euroclear or Clearstream, Euroclear or Clearstream is closed for business for a continuous period

251
of 14 days (other than by reason of holidays, statutory or otherwise) or announces an intention permanently to
cease business or does in fact do so; or (iv) the Trustee has instituted or has been directed to institute any judicial
proceeding in a court to enforce the rights of Holders of the Notes under the Notes and the Trustee has been
advised by counsel that in connection with such proceeding it is necessary or appropriate for the Trustee to obtain
possession of the Notes.

In such circumstances, the Republic will cause sufficient individual Certificated Securities to be executed
and delivered to the Registrar for completion, authentication and dispatch to the relevant Holder(s) of the Notes.

A person having an interest in a Global Security must provide the Registrar with:
(a) written order containing instructions and such other information as the Republic and the Registrar may
require to complete, execute and deliver such individual Certificated Securities; and
(b) in the case of a Restricted Global Security only, a fully completed, signed certification substantially to
the effect that the exchanging holder is not transferring its interest at the time of such exchange, or in
the case of a simultaneous resale pursuant to Rule l44A, a certification that the transfer is being made
in compliance with the provisions of Rule 144A. Certificated Securities issued pursuant to this
paragraph (b) shall bear the legends applicable to transfers pursuant to Rule l44A.

Transfers of Notes represented by Global Securities

Transfers of interests in Global Securities within DTC, Euroclear and Clearstream will be in accordance
with the usual rules and operating procedures of the relevant system. The laws in some states in the United States
require that certain persons take physical delivery of securities in definitive form. Consequently, the ability to
transfer a beneficial interest in a Global Security to such persons may require that such interests be exchanged for
Notes in definitive form. Because DTC can only act on behalf of participants in DTC, who in turn act on behalf
of indirect participants, the ability of a person having an interest in a Global Security to pledge such interest to
persons or entities that do not participate in the DTC system, or otherwise take actions in respect of such interest
may require that such interests be exchanged for Certificated Securities. The ability of the holder of a beneficial
interest in any Note represented by the Global Securities to resell, pledge or otherwise transfer such interest may
also be impaired if the proposed transferee of such interest is not eligible to hold the same through a participant
or indirect participant in DTC.

Beneficial interests in a Global Security may be held through Clearstream or Euroclear. Clearstream and
Euroclear will operate with respect to the Notes in accordance with customary Euromarket practice.

Secondary Trading, Same-Day Settlement and Payment

All payments made by the Republic with respect to Notes registered in the name of Cede & Co., as nominee
for DTC, will be passed through to DTC in same-day funds. In relation to secondary market trading, since the
purchaser determines the place of delivery, it is important to establish at the time of the trade where both the
purchasers and sellers accounts are located to ensure that settlement can be made on the desired value date.

Trading Within Same Clearing System

The following describes the transfer mechanisms between DTC, Euroclear and Clearstream. Holders should
note that transfers of beneficial interests in the Restricted Global Security, or the Unrestricted Global Security is
subject to limitations as set forth in Notice to Purchasers and Holders of Notes and Transfer Restrictions.

Trading within DTC. If neither the seller, nor the purchaser of Notes represented by any Global Security
holds or will receive (as the case may be) such Notes through a participant in DTC acting on behalf of Euroclear
or Clearstream, the trade will settle in same-day funds and in accordance with DTC rules, regulations and
procedures.

Trading within Euroclear or Clearstream. Transfers between account holders in Euroclear and Clearstream
will be effected in the ordinary way in accordance with their respective rules and operating procedures.

Trading Between Clearing Systems

Trading between Euroclear or Clearstream seller and DTC purchaser involving only Global Securities. Due
to time zone differences in their favor, Euroclear and Clearstream account holders may employ their customary

252
procedures for transactions in which interests in a Global Security are to be transferred by Euroclear or
Clearstream (as the case may be) to a participant in DTC. The seller will send instructions to Euroclear or
Clearstream through a Euroclear or Clearstream account holder (as the case may be) at least one business day
prior to settlement. In these cases, Euroclear or Clearstream will instruct its respective depositary to deliver the
interests in the Global Security to the participants account against payment. Payment will include interest (if
any) accrued on such interests in the Note from (and including) the immediately preceding date for the payment
of interest to (and excluding) the settlement date. The payment will then be reflected in the account of the
Euroclear or Clearstream account holder the following day, and receipt of cash proceeds in the Euroclear or
Clearstream account holders account would be back-valued to the value date (which would be the preceding day
when settlement occurred in New York). Should the Euroclear or Clearstream account holder have a line of
credit in its respective Clearing System and elect to be in debit in anticipation of receipt of the sale proceeds in its
account, the back-valuation will extinguish any overdraft charges incurred over that one-day period. If settlement
is not completed on the intended value date (i.e. the trade fails), receipt of the cash proceeds in the Euroclear or
Clearstream account holders account would be valued instead as of the actual settlement date.

Trading between DTC seller and Euroclear or Clearstream purchaser involving only Global Securities.
When interests in a Global Security are to be transferred from the account of a DTC participant to the account of
a Euroclear or Clearstream account holder, the purchaser will send instructions to Euroclear or Clearstream
through a Euroclear or Clearstream account holder, as the case may be, at least one business day prior to
settlement. Euroclear or Clearstream, as the case may be, will instruct its respective depositary to receive such
interests against payment. Payment will include interest (if any) accrued on such interest in the Global Security
from (and including) the immediately preceding date for the payment of interest to (and excluding) the settlement
date. Payment will then be made by the depositary to the participants account against delivery of the interests in
the Note. After settlement has been completed, the interests will be credited to the respective Clearing System,
and by the Clearing System, in accordance with its usual procedures, to the Euroclear or Clearstream account
holders account. The securities credit will appear the next day (Central European time) and the cash debit will
be back-valued to, and any interest on the Note will accrue from, the value date (which would be the preceding
day when settlement occurred in New York). If settlement is not completed on the intended value date (i.e. the
trade fails), the Euroclear or Clearstream cash debit will be valued instead as of the actual settlement date.

Day traders that use Euroclear or Clearstream to purchase interests in a Global Security from participants for
delivery to Euroclear or Clearstream account holders should note that these trades will automatically fail on the
sale side unless affirmative action is taken. At least three techniques should be readily available to eliminate this
potential problem:
(a) borrowing through Euroclear or Clearstream for one day (until the purchase side of the day trade is
reflected in their Euroclear or Clearstream accounts) in accordance with the Clearing Systems
customary procedures;
(b) borrowing the interests in the United States from a participant no later than one day prior to settlement,
which would give the interests sufficient time to be reflected in their Euroclear or Clearstream account
in order to settle the sale side of the trade; or
(c) staggering the value date for the buy and sell sides of the trade so that the value date for the purchase
from the participant is at least one day prior to the value date for the sale to the Euroclear or
Clearstream account holder.

Euroclear or Clearstream account holders will need to make available to the respective Clearing System the
funds necessary to process same-day funds settlement. The most direct means of doing so is to pre-position funds
for settlement, either from cash on-hand or existing lines of credit, as such participants would for any settlement
occurring within Euroclear or Clearstream. Under this approach, such participants may take on credit exposure to
Euroclear or Clearstream until the interests in the Note are credited to their accounts one day later.

Alternatively, if Euroclear or Clearstream has extended a line of credit to a Euroclear or Clearstream

account holder, as the case may be, such account holder may elect not to preposition funds and allow that credit
line to be drawn upon to finance settlement. Under this procedure, Euroclear or Clearstream account holders
purchasing interests in the Note held in DTC would incur overdraft charges for one day, assuming they cleared
the overdraft when the interests in the Note were credited to their accounts. However, any interest on the Note
would accrue from the value date. Therefore, in many cases the investment income on the interests in the Note
held in DTC earned during that one-day period may substantially reduce or offset the amount of such overdraft
charges, although this result will depend on each account holders particular cost of funds.

253
 Since the settlement takes place during New York business hours, participants can employ their usual
procedures for transferring interests in global Notes to the respective depositories of Euroclear or Clearstream for
the benefit of Euroclear or Clearstream account holders. The sale proceeds will be available to the DTC seller on
the settlement date. Thus, to the participants, a crossmarket transaction will settle no differently from a trade
between participants.

Secondary trading in long-term notes and debentures is generally settled in clearinghouse or next-day funds.
In contrast, Notes held through participants or indirect participants will trade in DTCs Same-Day Funds
Settlement System until the earliest of maturity or redemption, and secondary market trading activity in such
Notes will therefore be required by DTC to settle in immediately available funds. No assurance can be given as
to the effect, if any, of settlements in immediately available funds on trading activity in such Notes.

Although DTC, Clearstream and Euroclear have agreed to the foregoing procedures in order to facilitate
transfers of beneficial interests in the Global Securities among participants and account holders of DTC,
Clearstream and Euroclear, they are under no obligation to perform or continue to perform such procedures, and
such procedures may be discontinued at any time. None of the Republic, the Trustee, any agent, any Arranger or
any Dealer will have the responsibility for the performance by DTC, Clearstream or Euroclear or their respective
direct or indirect participants or account holders of their respective obligations under the rules and procedures
governing their operations.

While a Restricted Global Security is lodged with DTC or its custodian, Notes represented by individual
Certificated Securities will not be eligible for clearing or settlement through DTC, Clearstream or Euroclear.

254
 NOTICE TO PURCHASERS AND HOLDERS OF NOTES AND TRANSFER RESTRICTIONS

As a result of the following restrictions, purchasers of Notes in the United States are advised to consult legal
counsel prior to making any offer, resale, pledge or transfer of Notes.

Each prospective purchaser of Notes that have a legend regarding restrictions on transferability by accepting
delivery of this Offering Circular, will be deemed to have represented and agreed that this Offering Circular is
personal to such offeree and does not constitute an offer to any other person or to the public generally to
subscribe for or otherwise acquire Notes. Distribution of this Offering Circular, or disclosure of any of its
contents to any person other than such offeree and those persons, if any, retained to advise such offeree with
respect thereto is unauthorized, and any disclosure of any of its contents, without the prior written consent of the
Republic, is prohibited.

The Securities have not been and will not be registered under the Securities Act or any other securities laws,
and may not be offered or sold in the United States except pursuant to an effective registrations statement or in
accordance with an applicable exemption from the registration statement requirements of the Securities Act.
Accordingly, the Securities are being offered and sold in the United States only to persons reasonably believed to
be QIBs. The international offering is being made outside the United States to non-U.S. persons (in the case of
Bearer Notes) in offshore transactions pursuant to Regulation S.

Sales within the United States

Each purchaser of Notes within the United States pursuant to Rule 144A by accepting this Offering Circular
will be deemed to have represented, agreed and acknowledged as follows:
(a) It is (a) a qualified institutional buyer within the meaning of Rule 144A (QIB), (b) acquiring such
Notes for its own account or for the account of a QIB and (c) aware, and each beneficial owner of such
Notes has been advised, that the sale of such Notes to it is being made in reliance on Rule 144A.
(b) The Notes have not been and will not be registered under the Securities Act and may not be offered,
sold, pledged or otherwise transferred except (a) in accordance with Rule 144A to a person that it and
any person acting on its behalf reasonably believe is a QIB purchasing for its own account or for the
account of a QIB, (b) in an offshore transaction in accordance with Rule 903 or Rule 904 of
Regulation S or (c) pursuant to an exemption from registration under the Securities Act provided by
Rule 144 thereunder (if available), in each case in accordance with any applicable securities laws of
any state of the United States.
(c) Such Notes, for compliance with applicable law, will bear a legend to the following effect:
THIS NOTE (OR ITS PREDECESSOR) HAS NOT BEEN AND WILL NOT BE REGISTERED
UNDER, AND WAS ORIGINALLY ISSUED IN A TRANSACTION EXEMPT FROM
REGISTRATION UNDER, THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE
SECURITIES ACT) AND APPLICABLE SECURITIES LAWS OF THE STATES AND OTHER
JURISDICTIONS OF THE UNITED STATES, AND MAY NOT BE OFFERED, SOLD, PLEDGED
OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN
APPLICABLE EXEMPTION THEREFROM. EACH PURCHASER OF THIS NOTE IS HEREBY
NOTIFIED THAT THE SELLER OF THIS NOTE MAY BE RELYING ON THE EXEMPTION
FROM THE PROVISIONS OF SECTION 5 OF THE SECURITIES ACT PROVIDED BY RULE
144A THEREUNDER. TERMS USED HEREIN HAVE THE MEANINGS GIVEN THEM IN
REGULATION S UNDER THE SECURITIES ACT. THE HOLDER OF THIS NOTE BY ITS
ACCEPTANCE HEREOF REPRESENTS AND AGREES FOR THE BENEFIT OF THE REPUBLIC
AND THE DEALERS THAT (A) IT AND ANY ACCOUNT FOR WHICH IT IS ACTING IS A
QUALIFIED INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A UNDER THE
SECURITIES ACT) AND THAT IT EXERCISES SOLE INVESTMENT DISCRETION WITH
RESPECT TO EACH SUCH ACCOUNT, THAT (B) THIS NOTE MAY BE RESOLD, PLEDGED
OR OTHERWISE TRANSFERRED ONLY (1) IN THE UNITED STATES TO A PERSON WHOM
THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER (AS
DEFINED IN RULE 144A UNDER THE SECURITIES ACT) IN A TRANSACTION MEETING
THE REQUIREMENTS OF SUCH RULE 144A, (2) OUTSIDE THE UNITED STATES IN AN
OFFSHORE TRANSACTION IN ACCORDANCE WITH RULE 903 OR RULE 904 OF
REGULATION S UNDER THE SECURITIES ACT, (3) PURSUANT TO AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER (IF

255
 AVAILABLE) OR (4) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER
THE SECURITIES ACT AND IN EACH OF SUCH CASES IN ACCORDANCE WITH ANY
APPLICABLE SECURITIES LAWS OF ANY STATE OR OTHER JURISDICTION OF THE
UNITED STATES, AND THAT (C) THE HOLDER WILL, AND EACH SUBSEQUENT HOLDER
IS REQUIRED TO, NOTIFY ANY PURCHASER OF THIS NOTE FROM IT OF THE TRANSFER
RESTRICTIONS REFERRED TO IN (B) ABOVE.
FOR THE PURPOSES OF APPLYING THE ORIGINAL ISSUE DISCOUNT RULES UNDER THE
INTERNAL REVENUE CODE OF 1986, AS AMENDED, (1) THE ISSUE DATE OF THIS NOTE IS
[]; (2) THE YIELD TO MATURITY IS []% (COMPOUNDED SEMIANNUALLY); (3) THIS
NOTE IS BEING ISSUED WITH ORIGINAL ISSUE DISCOUNT IN THE AMOUNT OF U.S.$[]
PER U.S.$1,000 PRINCIPAL AMOUNT; (4) THE [] METHOD SPECIFIED IN THE PROPOSED
TREASURY REGULATIONS HAS BEEN USED TO DETERMINE YIELD AND THE AMOUNT
OF ORIGINAL ISSUE DISCOUNT ALLOCABLE TO THE SHORT INITIAL ACCRUAL PERIOD
BEGINNING [] AND ENDING []; AND (5) THE AMOUNT OF ORIGINAL ISSUE DISCOUNT
ALLOCATED TO SUCH ACCRUAL PERIOD IS U.S.$[] PER U.S.$[] PRINCIPAL AMOUNT.
(d) It understands that the Republic, the Registrar, the Arrangers, the Dealers and their affiliates, and
others will rely upon the truth and accuracy of the foregoing acknowledgements, representations and
agreements. If it is acquiring any Notes for the account of one or more QIBs it represents that it has
sole investment discretion with respect to each such account and that it has full power to make the
foregoing acknowledgements, representations and agreements on behalf of each such account.
(e) It understands that the Notes offered in reliance on Rule 144A will be represented by the Restricted
Global Security. Before any interest in the Restricted Global Security may be offered, sold, pledged or
otherwise transferred to a person who takes delivery in the form of an interest in the Unrestricted
Global Security, it will be required to provide the Note Registrar as Transfer Agent with a written
certification (in the form provided in the Indenture) as to compliance with applicable securities laws.

Each Certificated Security that is offered and sold in the United States to an Institutional Accredited
Investor pursuant to Section 4(a)(2) of the Securities Act or in a transaction otherwise exempt from registration
under the Securities Act will bear a legend to the following effect, in addition to such other legends as may be
necessary or appropriate for compliance with applicable law:

THIS NOTE (OR ITS PREDECESSOR) HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER,
AND WAS ORIGINALLY ISSUED IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER, THE
U.S. SECURITIES ACT OF 1933, AS AMENDED (THE SECURITIES ACT) AND UNDER APPLICABLE
SECURITIES LAWS OF THE STATES AND OTHER JURISDICTIONS OF THE UNITED STATES, AND
MAY NOT BE OFFERED, RESOLD, PLEDGED OR OTHERWISE TRANSFERRED IN THE ABSENCE OF
SUCH REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM. EACH PURCHASER OF THIS
NOTE ACKNOWLEDGES FOR THE BENEFIT OF THE REPUBLIC AND THE DEALERS THE
RESTRICTIONS ON THE TRANSFER OF THIS NOTE SET FORTH BELOW AND AGREES THAT IT
SHALL TRANSFER THIS NOTE ONLY AS PROVIDED IN THE INDENTURE ENTERED INTO BY THE
REPUBLIC AND THE TRUSTEE AS OF JANUARY 28, 2009. THE PURCHASER REPRESENTS THAT IT
IS AN INSTITUTIONAL ACCREDITED INVESTOR (WITHIN THE MEANING OF RULE 501(A)(1), (2),
(3) OR (7) UNDER THE SECURITIES ACT) AND IT IS ACQUIRING THIS NOTE FOR INVESTMENT
PURPOSES ONLY AND NOT WITH A VIEW TO ANY RESALE OR DISTRIBUTION HEREOF, SUBJECT
TO ITS ABILITY TO RESELL THIS NOTE PURSUANT TO RULE 144A OR REGULATION S UNDER
THE SECURITIES ACT OR AS OTHERWISE PROVIDED BELOW AND SUBJECT IN ANY CASE TO
ANY REQUIREMENT OF LAW THAT THE DISPOSITION OF THE PROPERTY OF ANY PURCHASER
SHALL AT ALL TIMES BE AND REMAIN WITHIN ITS CONTROL.

THE HOLDER OF THIS NOTE BY ITS ACCEPTANCE HEREOF AGREES TO OFFER, RESELL OR
OTHERWISE TRANSFER SUCH NOTE, PRIOR TO THE DATE (THE RESALE RESTRICTION
TERMINATION DATE) WHICH IS ONE YEAR AFTER THE LATER OF THE ORIGINAL ISSUE DATE
HEREOF AND THE LAST DATE ON WHICH THE REPUBLIC WAS THE OWNER OF THIS NOTE (OR
ANY PREDECESSOR OF SUCH NOTE), ONLY (A) IN THE UNITED STATES TO A PERSON WHOM IT
REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A
UNDER THE SECURITIES ACT) THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE
ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER IN A TRANSACTION MEETING THE
REQUIREMENTS OF SUCH RULE 144A, (B) INSIDE THE UNITED STATES TO AN INSTITUTIONAL

256
ACCREDITED INVESTOR (WITHIN THE MEANING OF RULE 501 (A)(1), (2), (3) or (7) UNDER THE
SECURITIES ACT) THAT IS ACQUIRING THE NOTE FOR ITS OWN ACCOUNT, OR FOR THE
ACCOUNT OF SUCH AN INSTITUTIONAL ACCREDITED INVESTOR, IN EACH CASE IN A
MINIMUM PRINCIPAL AMOUNT OF THE NOTES OF U.S.$250,000 AND MULTIPLES OF U.S.$1,000 IN
EXCESS THEREOF FOR INVESTMENT PURPOSES ONLY AND NOT WITH A VIEW TO, OR FOR
OFFER OR RESALE IN CONNECTION WITH, ANY DISTRIBUTION IN VIOLATION OF THE
SECURITIES ACT, (C) OUTSIDE THE UNITED STATES IN AN OFFSHORE TRANSACTION IN
ACCORDANCE WITH RULE 903 OR RULE 904 OF REGULATION S UNDER THE SECURITIES ACT,
(D) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT
PROVIDED BY RULE 144 THEREUNDER (IF AVAILABLE), (E) PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR (F) PURSUANT TO ANOTHER
AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT,
SUBJECT TO THE REPUBLICS RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER
PURSUANT TO CLAUSES (B), (D) OR (F) TO REQUIRE THE DELIVERY OF AN OPINION OF
COUNSEL, CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO THE REPUBLIC,
AND IN EACH OF THE FOREGOING CASES, A CERTIFICATE OF TRANSFER IN THE FORM
APPEARING ON THE OTHER SIDE OF THIS NOTE IS COMPLETED AND DELIVERED BY THE
TRANSFEROR TO THE TRUSTEE AND, IN EACH OF THE FOREGOING CASES, NOT IN VIOLATION
OF ANY APPLICABLE STATE SECURITIES LAWS. THIS LEGEND WILL BE REMOVED UPON THE
REQUEST OF THE HOLDER AFTER THE RESALE RESTRICTION TERMINATION DATE. THE
HOLDER WILL, AND EACH SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER
OF THIS NOTE FROM IT OF THE TRANSFER RESTRICTIONS REFERRED TO IN THIS PARAGRAPH.

IF REQUESTED BY THE REPUBLIC OR A DEALER, THE PURCHASER AGREES TO PROVIDE

THE INFORMATION NECESSARY TO DETERMINE WHETHER THE TRANSFER OF THIS NOTE IS
PERMISSIBLE UNDER THE SECURITIES ACT. THIS NOTE AND RELATED DOCUMENTATION MAY
BE AMENDED OR SUPPLEMENTED FROM TIME TO TIME TO MODIFY THE RESTRICTIONS ON AND
PROCEDURES FOR RESALES AND OTHER TRANSFERS OF THIS NOTE TO REFLECT ANY CHANGE
IN APPLICABLE LAW OR REGULATION (OR THE INTERPRETATION THEREOF) OR IN PRACTICES
RELATING TO THE RESALES OR TRANSFERS OF RESTRICTED SECURITIES GENERALLY. BY THE
ACCEPTANCE OF THIS NOTE, THE HOLDER HEREOF SHALL BE DEEMED TO HAVE AGREED TO
ANY SUCH AMENDMENT OR SUPPLEMENT.

FOR THE PURPOSES OF APPLYING THE ORIGINAL ISSUE DISCOUNT RULES UNDER THE
INTERNAL REVENUE CODE OF 1986, AS AMENDED, (1) THE ISSUE DATE OF THIS NOTE IS [];
(2) THE YIELD TO MATURITY IS []% (COMPOUNDED SEMIANNUALLY); (3) THIS NOTE IS BEING
ISSUED WITH ORIGINAL ISSUE DISCOUNT IN THE AMOUNT OF U.S.$[] PER U.S.$1,000 PRINCIPAL
AMOUNT; (4) THE [] METHOD SPECIFIED IN THE PROPOSED TREASURY REGULATIONS HAS
BEEN USED TO DETERMINE YIELD AND THE AMOUNT OF ORIGINAL ISSUE DISCOUNT
ALLOCABLE TO THE SHORT INITIAL ACCRUAL PERIOD BEGINNING [] AND ENDING []; AND
(5) THE AMOUNT OF ORIGINAL ISSUE DISCOUNT ALLOCATED TO SUCH ACCRUAL PERIOD IS
U.S.$[] PER U.S.$[] PRINCIPAL AMOUNT.

IN CONNECTION WITH ANY TRANSFER, THE HOLDER WILL DELIVER TO THE REGISTRAR
AND TRANSFER AGENT SUCH CERTIFICATES AND OTHER INFORMATION AS SUCH TRANSFER
AGENT MAY REASONABLY REQUIRE TO CONFIRM THAT THE TRANSFER COMPLIES WITH THE
FOREGOING RESTRICTIONS.

Each purchaser of Certificated Securities will be required to deliver to the Republic and the Registrar an
investment letter substantially in the form prescribed in the Indenture. The Certificated Securities in definitive
form will be subject to the transfer restrictions set forth in the above legend, such letter and in the Indenture.
Inquiries concerning transfers of Notes should be made to any Dealer.

Sales outside the United States

Each purchaser of Notes outside the United States pursuant to Regulation S, by accepting delivery of this
Offering Circular and the Notes will be deemed to have represented, agreed and acknowledged that:
(a) It is, or at the time Notes are purchased will be, the beneficial owner of such Notes and (a) it is located
outside the United States and (in the case of Bearer Notes) is not a U.S. person (as defined by the
Internal Revenue Code) and it is located outside the United States and (b) it is not an affiliate of the
Republic or a person acting on behalf of such an affiliate.

257
 (b) It understands that such Notes have not been and will not be registered under the Securities Act.
(c) It understands that such Notes, unless otherwise determined by the Republic in accordance with
applicable law, will bear a legend to the following:
THIS NOTE (OR ITS PREDECESSOR) HAS NOT BEEN AND WILL NOT BE REGISTERED
UNDER, AND WAS ORIGINALLY ISSUED IN A TRANSACTION EXEMPT FROM
REGISTRATION UNDER, THE U.S. SECURITIES ACT OF 1933, AS AMENDED
(THE SECURITIES ACT) AND APPLICABLE SECURITIES LAWS OF THE STATES AND
OTHER JURISDICTIONS OF THE UNITED STATES, AND MAY NOT BE OFFERED, SOLD,
PLEDGED OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR
AN APPLICABLE EXEMPTION THEREFROM. TERMS USED HEREIN HAVE THE MEANINGS
GIVEN THEM IN REGULATIONS UNDER THE SECURITIES ACT.
(d) It understands that the Republic, the Note Registrar, the Dealers and their affiliates, and others will rely
upon the truth and accuracy of the foregoing acknowledgements, representations and agreements.

General
Delivery of the Notes may be made against payment therefor on or about a date which will occur more than
three business days after the date of pricing of the Notes which date may be specified in the Pricing Supplement.
Pursuant to Rule 15c6-1 under the U.S. Securities Exchange Act of 1934 (the Exchange Act), trades in the
secondary market generally are required to settle in three business days, unless the parties to any such trade
expressly agree otherwise. Accordingly, purchasers who wish to trade Notes on the date of pricing or the next
succeeding business day will be required, by virtue of the fact that the Notes may initially settle on or about a
date which will occur more than three business days after the date of pricing of the Notes to specify an alternate
settlement cycle at the time of any such trade to prevent a failed settlement. Purchasers of Notes who wish to
trade Notes on the date of pricing or the next succeeding business day should consult their own advisor.

258
 TAXATION

The following is a summary of certain Indonesian and U.S. federal income tax consequences resulting from
the purchase, ownership and disposition of the Notes. This summary does not purport to consider all of the
possible U.S. federal income or Indonesian tax consequences of the purchase, ownership and disposition of the
Notes and is not intended to reflect the individual tax position of any beneficial owner. This summary is based
upon laws, regulations, rulings and decisions now in effect, all of which are subject to change (perhaps with
retroactive effect in the U.S.). The legal authorities on which this summary is based are subject to various
interpretations, and no rulings have been or will be sought from any tax agency with respect to the matters
described herein.

Persons considering the purchase of the Notes should consult their own tax advisors concerning the
application of U.S. federal income and Indonesian tax laws to their particular situations as well as any
consequences of the purchase, ownership and disposition of the Notes arising under the laws of any other
taxing jurisdiction.

Indonesian Taxation
The following summary of Indonesian taxation issues deals only with the implications for holders of Notes
who are non-residents for Indonesian taxation purposes.

Generally, an individual is considered a non-resident of Indonesia if the individual neither:

(a) resides in Indonesia (in determining whether a person resides in Indonesia, consideration will be given
to whether the person intends to reside in Indonesia); nor
(b) is present in Indonesia for more than 183 days in any 12-month period.

An entity will be considered a non-resident if it is established and domiciled outside of Indonesia.

In determining the residency of an individual or entity, consideration will be given to the provisions of any
applicable income tax treaty Indonesia has concluded with another jurisdiction.

If a non-resident has a permanent establishment in Indonesia, the permanent establishment is subject to

Indonesian income tax at a flat rate of 25% on all income, including but not limited to foreign source income
directly or indirectly attributable to such permanent establishment. In addition, the after-tax taxable income of a
permanent establishment is subject to a branch profits tax at the rate of 20% (which may be reduced under the
provisions of most income tax treaties entered into by Indonesia), unless such profits are reinvested in Indonesia
as a founding shareholder in an Indonesian company, as a shareholder in an Indonesian company acquiring fixed
assets or intangible assets, no later than the following fiscal year and in accordance with other requirements set
out in the Minister of Finance Regulation No. 14/PMK.03/2011 dated January 24, 2011. Under the Republics
income tax treaty with the U.S. (the U.S.-Indonesia Treaty), the branch profits tax on the after-tax taxable
income of a permanent establishment is reduced to 10%.

Taxation of Interest
Payments of interest on Notes issued under the Program to non-residents will generally be subject to an
Indonesian withholding tax (unless the Notes are held and owned by a permanent establishment in Indonesia, as
discussed below) assessed at a rate of 20% of the gross amount of the interest payment unless reduced by an
applicable tax treaty. If a non-resident qualifies for benefits under the U.S.-Indonesia Treaty, the withholding tax
is reduced to 10% of the gross amount of the interest payment. Accordingly, subject to certain exceptions, the
Republic will be required to pay Additional Amounts in respect of interest payments on the Notes. Under current
practice, the Republic pays withholding tax on the amounts of interest payments it makes to non-residents, but it
does not pay withholding tax on the Additional Amounts that it pays to non-residents.

If an individual or entity holds Notes through a permanent establishment in Indonesia, the permanent
establishment will be taxed on the interest at a flat income tax rate of 25%. Interest payments on Notes made to
the permanent establishment will be subject to a 15% withholding tax, which will be deducted by the Republic
from each interest payment. If the permanent establishment in Indonesia is a bank or a government-approved
pension fund, the interest payments on Notes will not be subject to withholding tax.

259
Taxation of Dispositions
Generally, gains resulting from the sale or other disposition of Notes by a non-resident will not be subject to
income, withholding or capital gains tax, unless the Notes are held and owned through a permanent establishment
in Indonesia. If Notes are held and owned by a permanent establishment in Indonesia, the permanent
establishment will be taxed on any profit at a flat income tax rate of 25%.

Under the U.S.-Indonesia Treaty, a U.S. resident shall be exempt from Indonesian tax on gains derived from
the sale, exchange, or other disposition of Notes held as capital assets unless:
(a) the recipient of the gain has a permanent establishment or fixed base in Indonesia and gain from the
disposition of Notes is effectively connected with such permanent establishment or fixed base; or
(b) the recipient of the gain is an individual and is present in Indonesia for a period or periods aggregating
120 days or more during the taxable year.

Other Indonesian Taxes

There are no other material Indonesian taxes or duties (e.g., inheritance taxes, gift duties, stamp duty or
similar taxes) that a holder of Notes will be required to pay in relation to any of the payments made by the
Republic.

Certain U.S. Federal Income Tax Considerations

The following is a summary of certain U.S. federal income tax consequences of the acquisition, ownership
and disposition of Notes by a U.S. Holder (as defined below). This summary deals only with initial purchasers of
Notes at the issue price that are U.S. Holders and that will hold the Notes as capital assets. The discussion does
not cover all aspects of U.S. federal income taxation that may be relevant to, or the actual tax effect that any of
the matters described herein will have on, the acquisition, ownership or disposition of Notes by particular
investors, and does not address state, local, foreign or other tax laws. This summary also does not discuss all of
the tax considerations that may be relevant to certain types of investors subject to special treatment under the
U.S. federal income tax laws (such as financial institutions, insurance companies, investors liable for the
alternative minimum tax or the Medicare net investment income tax, individual retirement accounts and other
tax-deferred accounts, tax-exempt organizations, dealers in securities or currencies, investors that will hold the
Notes as part of straddles, hedging transactions or conversion transactions for U.S. federal income tax purposes,
persons that have ceased to be U.S. citizens or lawful permanent residents of the United States, investors holding
the Notes in connection with a trade or business conducted outside of the United States, U.S. expatriates or
investors whose functional currency is not the U.S. dollar).

As used herein, the term U.S. Holder means a beneficial owner of Notes that is, for U.S. federal income tax
purposes, (i) an individual citizen or resident of the United States, (ii) a corporation created or organized under
the laws of the United States or any State thereof or the District of Columbia, (iii) an estate the income of which
is subject to U.S. federal income tax without regard to its source or (iv) a trust if a court within the United States
is able to exercise primary supervision over the administration of the trust and one or more U.S. persons have the
authority to control all substantial decisions of the trust, or the trust has validly elected to be treated as a domestic
trust for U.S. federal income tax purposes.

The U.S. federal income tax treatment of a partner in an entity treated as a partnership for U.S. federal
income tax purposes that holds Notes will depend on the status of the partner and the activities of the partnership.
Prospective purchasers that are entities treated as partnerships for U.S. federal income tax purposes should
consult their tax advisors concerning the U.S. federal income tax consequences to them and their partners of the
acquisition, ownership and disposition of Notes by the partnership.

This summary is based on the tax laws of the United States, including the Internal Revenue Code, its
legislative history, existing and proposed regulations promulgated thereunder, published rulings and court
decisions, as well as the U.S.-Indonesia Treaty, all as of the date hereof and all subject to change at any time,
possibly with retroactive effect.

Bearer Notes are not being offered to U.S. Holders. A U.S. Holder who owns a Bearer Note may be subject
to limitations under United States income tax laws, including the limitations provided in sections 165(j) and
1287(a) of the Internal Revenue Code.

Moreover, the summary deals only with Notes with a term of 30 years or less. The U.S. federal income tax
consequences of owning Notes with a longer term may be discussed in the applicable Pricing Supplement.

260
 This summary should be read in conjunction with the discussion of U.S. federal income tax consequences in
the applicable Pricing Supplement. To the extent there is any inconsistency in the discussion of U.S. tax
consequences to holders between this Offering Circular and the applicable Pricing Supplement, holders should
rely on the tax consequences described in the applicable Pricing Supplement instead of this Offering Circular.
The Issuer generally intends to treat Notes issued under the Program as debt, unless otherwise indicated in the
applicable Pricing Supplement. Certain Notes, however, such as certain Index Linked Notes or Notes with
extremely long maturities, may not be treated as debt for U.S. federal income tax purposes. The tax treatment of
Notes to which a treatment other than as debt may apply may be discussed in the applicable Pricing Supplement.
The following summary applies only to Notes that are treated as debt for U.S. federal income tax purposes.

THE SUMMARY OF U.S. FEDERAL INCOME TAX CONSEQUENCES SET OUT BELOW IS
FOR GENERAL INFORMATION ONLY. IT IS NOT INTENDED TO BE RELIED UPON BY
PURCHASERS FOR THE PURPOSE OF AVOIDING PENALTIES THAT MAY BE IMPOSED UNDER
THE INTERNAL REVENUE CODE. ALL PROSPECTIVE PURCHASERS SHOULD CONSULT
THEIR TAX ADVISORS AS TO THE PARTICULAR TAX CONSEQUENCES TO THEM OF
ACQUIRING, OWNING, AND DISPOSING OF THE NOTES, INCLUDING THEIR ELIGIBILITY
FOR THE BENEFITS OF THE U.S. INDONESIA TREATY, THE APPLICABILITY AND EFFECT
OF STATE, LOCAL, FOREIGN AND OTHER TAX LAWS AND POSSIBLE CHANGES IN TAX LAW.

Payments of Interest
General. Interest on a Note and the payment of any Additional Amounts, will be taxable to a U.S. Holder as
ordinary income at the time it is received or accrued, depending on such holders method of accounting for U.S.
federal income tax purposes. Interest and any Additional Amounts paid by the Republic on the Notes and original
issue discount (OID), if any, accrued with respect to the Notes (as described below under Original Issue
Discount) constitutes income from sources outside the United States.

Foreign Currency Denominated Interest. The amount of income recognized by a cash basis U.S. Holder will
be the U.S. dollar value of the interest payment, based on the exchange rate in effect on the date of receipt,
regardless of whether the payment is in fact converted into U.S. dollars.

An accrual basis U.S. Holder may determine the amount of income recognized with respect to an interest
payment denominated in foreign currency in accordance with either of two methods. Under the first method, the
amount of income accrued will be based on the average exchange rate in effect during the interest accrual period
(or, in the case of an accrual period that spans two taxable years of a U.S. Holder, the part of the period within
each taxable year).

Under the second method, the U.S. Holder may elect to determine the amount of income accrued on the
basis of the exchange rate in effect on the last day of the accrual period (or, in the case of an accrual period that
spans two taxable years, the exchange rate in effect on the last day of the part of the period within each taxable
year). Additionally, if a payment of interest is actually received within five business days of the last day of the
accrual period, an electing accrual basis U.S. Holder may instead translate the accrued interest into U.S. dollars at
the exchange rate in effect on the day of actual receipt. Any such election will apply to all debt instruments held
by the U.S. Holder at the beginning of the first taxable year to which the election applies or thereafter acquired
by the U.S. Holder, and will be irrevocable without the consent of the Internal Revenue Service (the IRS).

Upon receipt of the interest payment (including a payment attributable to accrued but unpaid interest upon
the sale or retirement of a Note) denominated in a foreign currency, the accrual basis U.S. Holder may recognize
U.S. source exchange gain or loss (taxable as U.S. source ordinary income or loss) equal to the difference
between the amount received (translated into U.S. dollars at the spot rate on the date of receipt) and the amount
previously accrued, regardless of whether the payment is in fact converted into U.S. dollars.

Effect of Indonesian Withholding Taxes. As discussed above under Taxation Indonesian Taxation,
under current law payments of interest on the Notes to foreign investors are subject to Indonesian withholding
taxes. The Republic is liable for the payment of Additional Amounts to U.S. Holders (see Description of the
Notes Taxation). For U.S. federal income tax purposes, U.S. Holders will be treated as having received the
amount of Indonesian taxes withheld by the Republic with respect to a Note, and as then having paid over the
withheld taxes to the Indonesian taxing authorities. As a result of this rule, the amount of interest income
included in gross income for U.S. federal income tax purposes by a U.S. Holder with respect to a payment of
interest may be greater than the amount of cash actually received (or receivable) by the U.S. Holder from the
Republic with respect to the payment.

261
 Subject to certain limitations, a U.S. Holder will generally be entitled to a credit against its U.S. federal
income tax liability, or a deduction in computing its U.S. federal taxable income, for Indonesian income taxes
withheld by the Republic. For purposes of the foreign tax credit limitation, foreign source income is classified in
one of two baskets, and the credit for foreign taxes on income in any basket is limited to U.S. federal income
tax allocable to that income. Interest, additional amounts, and OID (if any) generally will constitute foreign
source income in the passive income basket. In certain circumstances a U.S. Holder may be unable to claim
foreign tax credits (and may instead be allowed deductions) for Indonesian taxes imposed on a payment of
interest if the U.S. Holder has not held the Notes for at least 16 days during the 31-day period beginning on the
date that is 15 days before the date on which the right to receive the payment arises. Since a U.S. Holder may be
required to include OID on the Notes in its gross income in advance of any withholding of Indonesian income
taxes from payments attributable to the OID (which would generally occur when the Note is repaid or redeemed),
a U.S. Holder may not be entitled to a credit or deduction for these Indonesian income taxes in the year the OID
is included in the U.S. Holders gross income, and may be limited in its ability to credit or deduct in full the
Indonesian taxes in the year those taxes are withheld by the Republic. Prospective purchasers should consult their
tax advisors concerning the foreign tax credit implications of the payment of these Indonesian taxes.

Original Issue Discount

General. The Notes may be issued with OID. Accordingly, a U.S. Holder may need to include a portion of
the OID in gross income as interest in each taxable year or portion thereof in which the U.S. Holder holds the
Notes even if the U.S. Holder has not received a cash payment in respect of the OID.

A Note, other than a Note with a term of one year or less (a Short-Term Note), will be treated as issued
with OID (a Discount Note) if the excess of the Notes stated redemption price at maturity over its issue price
is equal to or more than a de minimis amount (0.25% of the Notes stated redemption price at maturity multiplied
by the number of complete years to its maturity). An obligation that provides for the payment of amounts other
than qualified stated interest before maturity (an installment obligation) will be treated as a Discount Note if the
excess of the Notes stated redemption price at maturity over its issue price is equal to or greater than 0.25% of
the Notes stated redemption price at maturity multiplied by the weighted average maturity of the Note. A Notes
weighted average maturity is the sum of the following amounts determined for each payment on a Note (other
than a payment of qualified stated interest): (i) the number of complete years from the issue date until the
payment is made multiplied by (ii) a fraction, the numerator of which is the amount of the payment and the
denominator of which is the Notes stated redemption price at maturity. Generally, the issue price of a Note will
be the first price at which a substantial amount of Notes included in the issue of which the Note is a part is sold to
persons other than bond houses, brokers, or similar persons or organizations acting in the capacity of
underwriters, placement agents, or wholesalers. The stated redemption price at maturity of a Note is the total of
all payments provided by the Note that are not payments of qualified stated interest. A qualified stated interest
payment generally is any one of a series of stated interest payments on a Note that are unconditionally payable at
least annually at a single fixed rate (with certain exceptions for lower rates paid during some periods), or a
variable rate (in the circumstances described below under Variable Interest Rate Notes), applied to the
outstanding principal amount of the Note. Solely for the purposes of determining whether a Note has OID, the
Issuer will be deemed to exercise any call option that has the effect of decreasing the yield on the Note, and the
U.S. Holder will be deemed to exercise any put option that has the effect of increasing the yield on the Note.

U.S. Holders of Discount Notes must include OID in income calculated on a constant-yield method before
the receipt of cash attributable to the income, and generally will have to include in income increasingly greater
amounts of OID over the life of the Discount Notes. The amount of OID includible in income by a U.S. Holder
of a Discount Note is the sum of the daily portions of OID with respect to the Discount Note for each day during
the taxable year or portion of the taxable year on which the U.S. Holder holds the Discount Note (accrued OID).
The daily portion is determined by allocating to each day in any accrual period a pro rata portion of the OID
allocable to that accrual period. Accrual periods with respect to a Discount Note may be of any length selected by
the U.S. Holder and may vary in length over the term of the Discount Note as long as (i) no accrual period is
longer than one year; and (ii) each scheduled payment of interest or principal on the Discount Note occurs on
either the final or first day of an accrual period. The amount of OID allocable to an accrual period equals the
excess of (a) the product of the Discount Notes adjusted issue price at the beginning of the accrual period and
the Discount Notes yield to maturity (determined on the basis of compounding at the close of each accrual
period and properly adjusted for the length of the accrual period) over (b) the sum of the payments of qualified
stated interest on the Discount Note allocable to the accrual period. The adjusted issue price of a Discount Note
at the beginning of any accrual period is the issue price of the Discount Note increased by (x) the amount of
accrued OID for each prior accrual period and decreased by (y) the amount of any payments previously made on
the Note that were not qualified stated interest payments.

262
 Generally, with respect to a Note denominated in a foreign currency, OID for each accrual period will be
determined in such foreign currency and then translated into U.S. dollars in the same manner as stated interest
accrued by an accrual basis U.S. Holder, as described above under Payments of Interest Foreign Currency
Denominated Interest. Upon receipt of an amount attributable to such OID (whether in connection with a
payment of interest or the sale or retirement of a Note), a U.S. Holder may recognize U.S. source exchange gain
or loss (taxable as ordinary income or loss) equal to the difference between the amount received (translated into
U.S. dollars at the spot rate on the date of receipt) and the amount previously accrued, regardless of whether the
payment is in fact converted into U.S. dollars.

Acquisition Premium. A U.S. Holder that purchases a Note for an amount less than or equal to the sum of all
amounts payable on the Note after the purchase date, other than payments of qualified state interest, but in excess
of its adjusted issue price (any such excess being acquisition premium) and that does not make the election
described below under Election to Treat All Interest as Original Issue Discount is permitted to reduce the daily
portions of OID by a fraction, the numerator of which is the excess of the U.S. Holders adjusted basis in the
Note immediately after its purchase over the Notes adjusted issue price, and the denominator of which is the
excess of the sum of all amounts payable on the Note after the purchase date, other than payments of qualified
stated interest, over the Notes adjusted issue price. Generally, with respect to a Note denominated in a foreign
currency, acquisition premium will be computed in units of such foreign currency, and acquisition premium that
is taken into account currently will reduce interest income in units of such foreign currency. On the date
acquisition premium offsets OID, a U.S. Holder may recognise U.S. source exchange gain or loss (taxable as
ordinary income or loss) measured by the difference between the spot rate in effect on that date, and on the date
the Notes were acquired by the U.S. Holder.

Market Discount. A Note generally will be treated as purchased at a market discount (a Market Discount
Note) if the Notes stated redemption price at maturity or, in the case of a Discount Note, the Notes revised
issue price exceeds the amount for which the U.S. Holder purchased the Note by at least 0.25% of the Notes
stated redemption price at maturity or revised issue price, respectively, multiplied by the number of complete
years from the date acquired by the U.S. Holder to the Notes maturity (or, in the case of a Note that is an
installment obligation, the Notes weighted average maturity). If this excess is not sufficient to cause the Note to
be a Market Discount Note, then the excess constitutes de minimis market discount. For this purpose, the
revised issue price of a Note generally equals its issue price, increased by the amount of any OID that has
accrued on the Note and decreased by the amount of any payments previously made on the Note that were not
qualified stated interest payments.

Under current law, any gain recognized on the sale or retirement of a Market Discount Note generally will
be treated as ordinary income to the extent that the gain does not exceed the accrued market discount on the Note.
Alternatively, a U.S. Holder of a Market Discount Note may avoid such treatment by electing to include market
discount in income currently over the life of the Note. This election will apply to all debt instruments with market
discount acquired by the electing U.S. Holder on or after the first day of the first taxable year to which the
election applies. This election may not be revoked without the consent of the IRS. A U.S. Holder of a Market
Discount Note that does not elect to include market discount in income currently generally will be required to
defer deductions for interest on borrowings incurred to purchase or carry a Market Discount Note. If the interest
expense exceeds such income, such excess is currently deductible only to the extent that such excess exceeds the
portion of the market discount allocable to the days during the taxable year on which such Note was held by the
U.S. Holder.

Under current law, market discount on a Market Discount Note will accrue on a straight-line basis unless the
U.S. Holder elects to accrue the market discount on a constant-yield method. This election applies only to the
Note with respect to which it is made and is irrevocable.

Generally, with respect to a Note denominated in a foreign currency, market discount that is accrued by a
U.S. Holder will be accrued in such foreign currency. If the U.S. Holder elects to include market discount in
income currently, the accrued market discount will be translated into U.S. dollars at the average exchange rate for
the accrual period (or portion thereof within the U.S. Holders taxable year). Upon the receipt of an amount
attributable to such accrued market discount, the U.S. Holder may recognize U.S. source exchange gain or loss
(taxable as ordinary income or loss) determined in the same manner as for accrued interest or OID. A U.S.
Holder that does not elect to include market discount in income currently will recognize, upon the sale or
retirement of the Note, the U.S. dollar value of the amount accrued, calculated at the spot rate on that date, and
no part of this accrued market discount will be treated as exchange gain or loss.

263
 Election to Treat All Interest as Original Issue Discount. A U.S. Holder may elect to include in gross
income all interest that accrues on a Note using the constant-yield method described above under Original Issue
Discount General, with certain modifications. For purposes of this election, interest includes interest, OID,
market discount, de minimis OID and de minimis market discount, as adjusted by any amortizable bond premium
(as described below under Notes Purchased at a Premium) or acquisition premium. This election generally
applies only to the Note with respect to which it is made and may not be revoked without the consent of the IRS.
If the election to apply the constant yield method to all interest on a Note is made with respect to a Market
Discount Note, the electing U.S. Holder will be treated as having made the election described above under
Market Discount to include market discount in income currently over the life of all debt instruments held at the
beginning of the taxable year to which election applies or thereafter acquired by the U.S. Holder. U.S. Holders
should consult their tax advisors concerning the propriety and consequences of this election.

Notes Purchased at a Premium

A U.S. Holder that purchases a Note for an amount in excess of its principal amount, or for a Discount Note,
its stated redemption price at maturity, may elect to treat the excess as amortizable bond premium, in which
case the amount of interest on the Note required to be included in the U.S. Holders income each year will be
reduced by the amount of amortizable bond premium allocable (based on the Notes yield to maturity) to that
year. The amount of amortizable bond premium for each taxable year is the sum of the daily portions of bond
premium with respect to the Note for each day during the taxable year or portion of the taxable year on which the
U.S. Holder holds the Note. The daily portion is determined by allocating to each day in any accrual period a
pro rata portion of the bond premium allocable to that accrual period. Accrual periods with respect to a Note may
be of any length selected by the U.S. Holder and may vary in length over the term of the Note as long as (i) no
accrual period is longer than one year; and (ii) each scheduled payment of interest or principal on the Note occurs
on either the final or first day of an accrual period. The amount of bond premium allocable to an accrual period
equals the excess of (a) the sum of the payments of interest on the Note allocable to the accrual period over
(b) the product of the Notes adjusted acquisition price at the beginning of the accrual period and the Notes yield
to maturity (determined on the basis of compounding at the close of each accrual period and properly adjusted for
the length of the accrual period). The adjusted acquisition price of a Note at the beginning of any accrual
period is the U.S. Holders purchase price for the Note, decreased by the amount of bond premium for each prior
accrual period. Generally, with respect to a Note denominated in any currency other than the U.S. dollar, bond
premium will be computed in units of such foreign currency, and amortizable bond premium that is taken into
account currently will reduce interest income in units of such foreign currency. On the date amortized bond
premium offsets interest income, a U.S. Holder may recognize U.S. source exchange gain or loss (taxable as
ordinary income or loss) measured by the difference between the spot rate in effect on that date, and on the date
the Notes were acquired by the U.S. Holder. A U.S. Holder that does not elect to take bond premium into account
currently will recognize a capital loss when the Note matures. Any election to amortize bond premium applies to
all bonds (other than bonds the interest on which is excludible from gross income for U.S. federal income tax
purposes) held by the U.S. Holder at the beginning of the first taxable year to which the election applies or
thereafter acquired by the U.S. Holder, and is irrevocable without the consent of the IRS.

Variable Interest Rate Notes

Notes that provide for interest at variable rates (Variable Interest Rate Notes) generally will bear interest
at a qualified floating rate and thus will be treated as variable rate debt instruments under U.S. Treasury
Regulations governing accrual of OID. A Variable Interest Rate Note will qualify as a variable rate debt
instrument if (a) its issue price does not exceed the total noncontingent principal payments due under the
Variable Interest Rate Note by more than a specified de minimis amount, (b) it provides for stated interest, paid
or compounded at least annually, at (i) one or more qualified floating rates, (ii) a single fixed rate and one or
more qualified floating rates, (iii) a single objective rate, or (iv) a single fixed rate and a single objective rate that
is a qualified inverse floating rate, and (c) it does not provide for any principal payments that are contingent
(other than as described in (a) above).

A qualified floating rate is any variable rate where variations in the value of the rate can reasonably be
expected to measure contemporaneous variations in the cost of newly borrowed funds in the currency in which
the Variable Interest Rate Note is denominated. A fixed multiple of a qualified floating rate will constitute a
qualified floating rate only if the multiple is greater than 0.65 but not more than 1.35. A variable rate equal to the
product of a qualified floating rate and a fixed multiple that is greater than 0.65 but not more than 1.35, increased
or decreased by a fixed rate, will also constitute a qualified floating rate. In addition, two or more qualified
floating rates that can reasonably be expected to have approximately the same values throughout the term of the

264
Variable Interest Rate Note (e.g., two or more qualified floating rates with values within 25 basis points of each
other as determined on the Variable Interest Rate Notes issue date) will be treated as a single qualified floating
rate. Notwithstanding the foregoing, a variable rate that would otherwise constitute a qualified floating rate but
which is subject to one or more restrictions such as a maximum numerical limitation (i.e., a cap) or a minimum
numerical limitation (i.e., a floor) may, under certain circumstances, fail to be treated as a qualified floating rate.

An objective rate is a rate that is not itself a qualified floating rate but which is determined using a single
fixed formula and which is based on objective financial or economic information (e.g., one or more qualified
floating rates or the yield of actively traded personal property). A rate will not qualify as an objective rate if it is
based on information that is within the control of the Republic (or a related party) or that is unique to the
circumstances of the Republic (or a related party), although a rate does not fail to be an objective rate merely
because it is based on the credit quality of the Republic. Other variable interest rates may be treated as objective
rates if so designated by the IRS in the future. Despite the foregoing, a variable rate of interest on a Variable
Interest Rate Note will not constitute an objective rate if it is reasonably expected that the average value of the
rate during the first half of the Variable Interest Rate Notes term will be either significantly less than or
significantly greater than the average value of the rate during the final half of the Variable Interest Rate Notes
term. A qualified inverse floating rate is any objective rate where the rate is equal to a fixed rate minus a
qualified floating rate, as long as variations in the rate can reasonably be expected to inversely reflect
contemporaneous variations in the qualified floating rate. If a Variable Interest Rate Note provides for stated
interest at a fixed rate for an initial period of one year or less followed by a variable rate that is either a qualified
floating rate or an objective rate for a subsequent period and if the variable rate on the Variable Interest Rate
Notes issue date is intended to approximate the fixed rate (e.g., the value of the variable rate on the issue date
does not differ from the value of the fixed rate by more than 25 basis points), then the fixed rate and the variable
rate together will constitute either a single qualified floating rate or objective rate, as the case may be.

A qualified floating rate or objective rate in effect at any time during the term of the instrument must be set
at a current value of that rate. A current value of a rate is the value of the rate on any day that is no earlier
than three months prior to the first day on which that value is in effect and no later than one year following that
first day.

If a Variable Interest Rate Note that provides for stated interest at either a single qualified floating rate or a
single objective rate throughout the term thereof qualifies as a variable rate debt instrument, then any stated
interest on the Note which is unconditionally payable in cash or property (other than debt instruments of the
Republic) at least annually will constitute qualified stated interest and will be taxed accordingly. Thus, a Variable
Interest Rate Note that provides for stated interest at either a single qualified floating rate or a single objective
rate throughout the term thereof and that qualifies as a variable rate debt instrument generally will not be
treated as having been issued with OID unless the Variable Interest Rate Note is issued at a true discount
(i.e., at a price below the Notes stated principal amount) in excess of a specified de minimis amount. OID on a
Variable Interest Rate Note arising from true discount is allocated to an accrual period using the constant yield
method described above by assuming that the variable rate is a fixed rate equal to (i) in the case of a qualified
floating rate or qualified inverse floating rate, the value, as of the issue date, of the qualified floating rate or
qualified inverse floating rate, or (ii) in the case of an objective rate (other than a qualified inverse floating rate),
a fixed rate that reflects the yield that is reasonably expected for the Variable Interest Rate Note.

In general, any other Variable Interest Rate Note that qualifies as a variable rate debt instrument will be
converted into an equivalent fixed rate debt instrument for purposes of determining the amount and accrual of
OID and qualified stated interest on the Variable Interest Rate Note. Such a Variable Interest Rate Note must be
converted into an equivalent fixed rate debt instrument by substituting any qualified floating rate or qualified
inverse floating rate provided for under the terms of the Variable Interest Rate Note with a fixed rate equal to the
value of the qualified floating rate or qualified inverse floating rate, as the case may be, as of the Variable
Interest Rate Notes issue date. Any objective rate (other than a qualified inverse floating rate) provided for under
the terms of the Variable Interest Rate Note is converted into a fixed rate that reflects the yield that is reasonably
expected for the Variable Interest Rate Note. In the case of a Variable Interest Rate Note that qualifies as a
variable rate debt instrument and provides for stated interest at a fixed rate in addition to either one or more
qualified floating rates or a qualified inverse floating rate, the fixed rate is initially converted into a qualified
floating rate (or a qualified inverse floating rate, if the Variable Interest Rate Note provides for a qualified
inverse floating rate). Under these circumstances, the qualified floating rate or qualified inverse floating rate that
replaces the fixed rate must be such that the fair market value of the Variable Interest Rate Note as of the
Variable Interest Rate Notes issue date is approximately the same as the fair market value of an otherwise

265
identical debt instrument that provides for either the qualified floating rate or qualified inverse floating rate rather
than the fixed rate. Subsequent to converting the fixed rate into either a qualified floating rate or a qualified
inverse floating rate, the Variable Interest Rate Note is converted into an equivalent fixed rate debt instrument
in the manner described above.

Once the Variable Interest Rate Note is converted into an equivalent fixed rate debt instrument pursuant to
the foregoing rules, the amount of OID and qualified stated interest, if any, are determined for the equivalent
fixed rate debt instrument by applying the general OID rules to the equivalent fixed rate debt instrument and a
U.S. Holder of the Variable Interest Rate Note will account for the OID and qualified stated interest as if the
U.S. Holder held the equivalent fixed rate debt instrument. In each accrual period, appropriate adjustments will
be made to the amount of qualified stated interest or OID assumed to have been accrued or paid with respect to
the equivalent fixed rate debt instrument in the event that these amounts differ from the actual amount of
interest accrued or paid on the Variable Interest Rate Note during the accrual period.

If a Variable Interest Rate Note, such as a Note the payments on which are determined by reference to an
index, does not qualify as a variable rate debt instrument, then the Variable Interest Rate Note will be treated
as a contingent payment debt obligation. See Contingent Payment Debt Instruments below for a discussion of
the U.S. federal income tax treatment of such Notes.

Contingent Payment Debt Instruments

Certain Series of Notes may be treated as contingent payment debt instruments for U.S. federal income
tax purposes (Contingent Notes). Under applicable U.S. Treasury Regulations, interest on Contingent Notes will
be treated as OID, and must be accrued on a constant-yield basis based on a yield to maturity that reflects the rate
at which the Republic would issue a comparable fixed-rate non-exchangeable instrument (the comparable
yield), in accordance with a projected payment schedule. This projected payment schedule must include each
non-contingent payment on the Contingent Notes and an estimated amount for each contingent payment, and
must produce the comparable yield.

The Republic is required to provide to holders, solely for U.S. federal income tax purposes, a schedule of
the projected amounts of payments on Contingent Notes. This schedule must produce the comparable yield. The
comparable yield and projected payment schedule will be available from the Republic by submitting a written
request for such information.

THE COMPARABLE YIELD AND PROJECTED PAYMENT SCHEDULE WILL NOT BE

DETERMINED FOR ANY PURPOSE OTHER THAN FOR THE DETERMINATION OF INTEREST
ACCRUALS AND ADJUSTMENTS THEREOF IN RESPECT OF CONTINGENT NOTES FOR UNITED
STATES FEDERAL INCOME TAX PURPOSES AND WILL NOT CONSTITUTE A PROJECTION OR
REPRESENTATION REGARDING THE ACTUAL AMOUNTS PAYABLE TO THE HOLDERS OF THE
NOTES.

The use of the comparable yield and the calculation of the projected payment schedule will be based upon a
number of assumptions and estimates and will not be a prediction, representation or guarantee of the actual
amounts of interest that may be paid to a U.S. Holder or the actual yield of the Contingent Notes. A U.S. Holder
will generally be bound by the comparable yield and the projected payment schedule determined by the Republic,
unless the U.S. Holder determines its own comparable yield and projected payment schedule and explicitly
discloses such schedule to the IRS, and explains to the IRS the reason for preparing its own schedule. The
Republics determination, however, is not binding on the IRS, and it is possible that the IRS could conclude that
some other comparable yield or projected payment schedule should be used instead.

A U.S. Holder of a Contingent Note generally will be required to include OID in income pursuant to the
rules discussed under Original Issue Discount General above, applied to the projected payment schedule.
The adjusted issue price of a Contingent Note at the beginning of any accrual period is the issue price of the
Note increased by the amount of accrued OID for each prior accrual period, and decreased by the projected
amount of any payments on the Note. No additional income will be recognized upon the receipt of payments of
stated interest (including the amount of any Indonesian withholding taxes, as discussed above) in amounts equal
to the annual payments included in the projected payment schedule described above. Any differences between
actual payments received by the U.S. Holder on the Notes in a taxable year and the projected amount of those
payments will be accounted for as additional interest (in the case of a positive adjustment) or as an offset to
interest income in respect of the Note (in the case of a negative adjustment), for the taxable year in which the

266
actual payment is made. If the negative adjustment for any taxable year exceeds the amount of OID on the
Contingent Note for that year, the excess will be treated as an ordinary loss, but only to the extent the U.S.
Holders total OID inclusions on the Contingent Note exceed the total amount of any ordinary loss in respect of
the Contingent Note claimed by the U.S. Holder under this rule in prior taxable years. Any negative adjustment
that is not allowed as an ordinary loss for the taxable year is carried forward to the next taxable year, and is taken
into account in determining whether the U.S. Holder has a net positive or negative adjustment for that year.
However, any negative adjustment that is carried forward to a taxable year in which the Contingent Note is sold,
exchanged or retired, to the extent not applied to OID accrued for such year, reduces the U.S. Holders amount
realized on the sale, exchange or retirement.

Short-Term Notes
In general, an individual or other cash basis U.S. Holder of a Note with a term of one year or less is not
required to accrue OID (calculated as set forth below for the purposes of this paragraph) for U.S. federal income
tax purposes unless it elects to do so (but may be required to include any stated interest in income as the interest
is received). Accrual basis U.S. Holders and certain other U.S. Holders are required to accrue OID on
Short-Term Notes on a straight-line basis or, if the U.S. Holder so elects, under the constant-yield method (based
on daily compounding). In the case of a U.S. Holder not required and not electing to include OID in income
currently, any gain realized on the sale or other disposition of the Short-Term Note will be ordinary income to the
extent of the OID accrued on a straight-line basis (unless an election is made to accrue the OID under the
constant-yield method) through the date of sale or other disposition. U.S. Holders who are not required and do
not elect to accrue OID on Short-Term Notes will be required to defer deductions for interest on borrowings
allocable to Short-Term Notes in an amount not exceeding the deferred income until the deferred income is
realized.

For purposes of determining the amount of OID subject to these rules, all interest payments on a Short-Term
Note are included in the Short-Term Notes stated redemption price at maturity. A U.S. Holder may elect to
determine OID on a Short-Term Note as if the Short Term Note had been originally issued to the U.S. Holder at
the U.S. Holders purchase price for the Short-Term Note. This election shall apply to all obligations with a
maturity of one year or less acquired by the U.S. Holder on or after the first day of the first taxable year to which
the election applies, and may not be revoked without the consent of the IRS.

Sale and Retirement of the Notes

U.S. dollar Notes Other than Contingent Notes
A U.S. Holders adjusted tax basis in a Note will generally be its cost, increased by the amount of any OID
or market discount included in the U.S. Holders income with respect to the Note and the amount, if any, of
income attributable to de minimis OID and de minimis market discount included in the U.S. Holders income
with respect to the Note, and reduced by (i) the amount of any payments that are not qualified stated interest
payments, and (ii) the amount of any amortizable bond premium applied to reduce interest on the Note.

A U.S. Holder will generally recognize gain or loss on the sale or retirement of a Note equal to the
difference between the amount realized on the sale or retirement and the U.S. Holders adjusted tax basis of the
Note. The amount realized does not include the amount attributable to accrued but unpaid interest, which will be
taxable as interest income to the extent not previously included in income. Except to the extent described above
under Original Issue Discount Market Discount or Original Issue Discount Short Term Notes or
attributable to changes in exchange rates (as discussed below), gain or loss recognized on the sale or retirement
of a Note will be capital gain or loss and will be long-term capital gain or loss if the U.S. Holders holding period
in the Notes exceeds one year.

Foreign Currency Notes Other than Contingent Notes

A U.S. Holder generally will recognize gain or loss on the sale or retirement of a Note equal to the
difference between the amount realized on the sale or retirement and the tax basis of the Note. A U.S. Holders
tax basis in a Note will generally be its U.S. dollar cost (as defined below) increased by the amount of any OID
or market discount included in the U.S. Holders income with respect to the Note and reduced by (i) the amount
of any principal paid on the Note, and (ii) the amount of any amortizable bond premium applied to reduce
interest on the Note. The U.S. dollar cost of a Note purchased with foreign currency will generally be the
U.S. dollar value of the purchase price on the date of purchase, or the settlement date for the purchase, in the case

267
of Notes traded on an established securities market, as defined in the applicable U.S. Treasury Regulations, that
are purchased by a cash basis U.S. Holder (or an accrual basis U.S. Holder that so elects). The amount realized
does not include the amount attributable to accrued but unpaid interest, which will be taxable as interest income
to the extent not previously included in income. The amount realized on a sale or retirement for an amount in
foreign currency will be the U.S. dollar value of this amount on the date of sale or retirement, or the settlement
date for the sale, in the case of Notes traded on an established securities market, as defined in the applicable U.S.
Treasury Regulations, sold by a cash basis U.S. Holder (or an accrual basis U.S. Holder that so elects). Such an
election by an accrual basis U.S. Holder must be applied consistently from year to year and cannot be revoked
without the consent of the IRS.

A U.S. Holder will recognize U.S. source exchange rate gain or loss (taxable as ordinary income or loss) on
the sale or retirement of a Note equal to the difference, if any, between the U.S. dollar values of the U.S. Holders
purchase price for the Note (or, if less, the principal amount of the Note) (i) on the date of sale or retirement and
(ii) the date on which the U.S. Holder acquired the Note. Any such exchange rate gain or loss (including any
exchange gain or loss with respect to the receipt of accrued but unpaid interest) will be realized only to the extent
of total gain or loss realized on the sale or retirement. Except to the extent described above under Original Issue
Discount Market Discount above or changes in exchange rates, gain or loss recognized by a U.S. Holder on
the sale or retirement of a Note will be capital gain or loss and will be long-term capital gain or loss if the Note
was held by the U.S. Holder for more than one year. Gain or loss realized by a U.S. Holder on the sale or
retirement of a Note generally will be U.S. source.

U.S. dollar Denominated Contingent Notes

In general, any gain recognized by a U.S. Holder on the sale or retirement of a U.S. dollar denominated
Contingent Note will be treated as interest income taxable at ordinary income (rather than capital gains) rates.
Any loss so recognized by a U.S. Holder is generally ordinary loss to the extent that the total interest inclusions
on such Contingent Note exceed the total net negative adjustments the U.S. Holder already accounted for as
ordinary loss. Any additional loss is treated as loss from the sale, or retirement of such Contingent Note. If at the
time of the sale, or retirement there are no remaining contingent payments due on such Contingent Note under
the projected payment schedule, then any gain or loss recognized by the U.S. Holder is generally treated as gain
or loss from the sale, or retirement of the Contingent Note.

For purposes of determining the amount realized by a U.S. Holder on the scheduled retirement of a
Contingent Note, a U.S. Holder is treated as receiving the projected amount of any contingent payment due at
maturity. If the amount received is different from the projected amount, the difference is treated as a positive or
negative adjustment, as discussed above. The amount realized by a U.S. Holder on the retirement of a Contingent
Note is reduced by any negative adjustment carryforward determined in the taxable year of the retirement. An
unscheduled retirement of a Contingent Note (or the receipt of a pro-rata payment that is treated as a retirement
of a portion of a Contingent Note) is treated as a repurchase of the Contingent Note by the issuer from the
U.S. Holder for the amount paid. Gain or loss realized by a U.S. Holder on the sale or retirement of a Contingent
Note will generally be foreign source. Prospective purchasers should consult their tax advisors as to the foreign
tax credit implications of the sale or retirement of Contingent Notes.

Foreign Currency Denominated Contingent Notes

A U.S. Holder generally will recognize gain or loss on the sale or retirement of a Contingent Note equal to
the difference between the amount realized on the sale or retirement and the U.S. Holders tax basis in the
Contingent Note, both translated into U.S. dollars as described above. A U.S. Holders tax basis in a Foreign
Currency Denominated Contingent Note will equal (i) the cost thereof (translated into U.S. dollars at the spot rate
on the issue date or the date the Contingent Note was purchased), (ii) increased by the amount of OID previously
accrued on the Contingent Note (disregarding any positive or negative adjustments and translated into U.S.
dollars using the exchange rate applicable to such OID) and (iii) decreased by the projected amount of all prior
payments in respect of such Contingent Note. The U.S. dollar amount of the projected payments described in
clause (iii) of the preceding sentence is determined by (i) first allocating the payments to the most recently
accrued OID to which prior amounts have not already been allocated and translating those amounts into U.S.
dollars at the rate at which the OID was accrued and (ii) then allocating any remaining amount to principal and
translating such amount into U.S. dollars at the spot rate on the date the Contingent Note was acquired by the
U.S. Holder. For this purpose, any accrued OID reduced by a negative adjustment carry forward will be treated
as principal.

268
 The amount realized by a U.S. Holder upon the sale or retirement of a Foreign Currency Denominated
Contingent Note will equal the amount of cash and the fair market value (determined in foreign currency) of any
property received. If a U.S. Holder holds such a Contingent Note until its scheduled maturity, the U.S. dollar
equivalent of the amount realized will be determined by separating such amount realized into principal and one
or more OID components, based on the principal and OID comprising the U.S. Holders basis, with the amount
realized allocated first to OID (and allocated to the most recently accrued amounts first) and any remaining
amounts allocated to principal. The U.S. dollar equivalent of the amount realized upon a sale or unscheduled
retirement of such a Contingent Note will be determined in a similar manner, but will first be allocated to
principal and then any accrued OID (and will be allocated to the earliest accrued amounts first). Each component
of the amount realized will be translated into U.S. dollars using the exchange rate used with respect to the
corresponding principal or accrued OID. The amount of any gain realized upon a sale or unscheduled retirement
of such a Contingent Note will be equal to the excess of the amount realized over the holders tax basis, both
expressed in foreign currency, and will be translated into U.S. dollars using the spot rate on the payment date.
Gain from the sale or retirement of such a Contingent Note will generally be treated as interest income taxable at
ordinary income (rather than capital gains) rates. Any loss will be ordinary loss to the extent that the
U.S. Holders total OID inclusions to the date of sale or retirement exceed the total net negative adjustments that
the U.S. Holder took into account as ordinary loss, and any further loss will be capital loss. Gain or loss realized
by a U.S. Holder on the sale or retirement of a Contingent Note generally will be foreign source. Prospective
purchasers should consult their tax advisers as to the foreign tax credit implications of the sale or retirement of
Contingent Notes.

A U.S. Holder will also recognize U.S. source exchange rate gain or loss (taxable as ordinary income or
loss) on the receipt of foreign currency in respect of such a Contingent Note if the exchange rate in effect on the
date the payment is received differs from the rate applicable to the principal or accrued OID to which such
payment relates.

Disposition of Foreign Currency

Foreign currency received as interest on a Note or on the sale or retirement of a Note will have a tax basis
equal to its U.S. dollar value at the time the foreign currency is received. Foreign currency that is purchased will
generally have a tax basis equal to the U.S. dollar value of the foreign currency on the date of purchase. Any gain
or loss recognized on a sale or other disposition of a foreign currency (including its use to purchase Notes or
upon exchange for U.S. dollars) will be U.S. source ordinary income or loss.

Backup Withholding and Information Reporting

Payments of principal, interest and accruals of OID on, and the proceeds of sale or other disposition of
Notes by a U.S. paying agent or other U.S. intermediary will be reported to the IRS and to the U.S. Holder as
may be required under applicable regulations. Backup withholding may apply to these payments, including
payments of OID, if the U.S. Holder fails to provide an accurate taxpayer identification number or certification of
exempt status or fails to comply with applicable certification requirements. Certain U.S. Holders are not subject
to backup withholding. U.S. Holders should consult their tax advisors as to their qualification for exemption from
backup withholding and the procedure for obtaining an exemption.

Certain U.S. Holders may be required to report to the IRS certain information with respect to their beneficial
ownership of certain foreign financial assets, such as the Notes, if the aggregate value of such assets exceeds
U.S.$50,000 on the last day of the taxable year or an aggregate value in excess of $75,000 at any time during the
taxable year (or, in certain circumstances, higher thresholds) and the Notes are not held in an account at certain
financial institutions (in which case the account maintained by the financial institution may be reportable). U.S.
Holders who fail to report required information could be subject to substantial penalties. Prospective investors
should consult their own tax advisors concerning the application of the information reporting and backup
withholding rules to their particular circumstances.

Reportable Transactions
A U.S. taxpayer that participates in a reportable transaction will be required to disclose its participation to
the IRS. The scope and application of these rules is not entirely clear. A U.S. Holder may be required to treat a
foreign currency exchange loss from the Notes as a reportable transaction if the loss exceeds U.S.$50,000 in a
single taxable year, if the U.S. Holder is an individual or trust, or higher amounts for other non-individual
U.S. Holders. In the event the acquisition, holding or disposition of Notes constitutes participation in a reportable

269
transaction for purposes of these rules, a U.S. Holder will be required to disclose its investment by filing
Form 8886 with the IRS. A penalty in the amount of U.S.$10,000 in the case of a natural person and U.S.$50,000
in all other cases is generally imposed on any taxpayer that fails to timely file an information return with the IRS
with respect to a transaction resulting in a loss that is treated as a reportable transaction. In addition, the Republic
and its advisors may also be required to disclose the transaction to the IRS, and to maintain a list of U.S. Holders,
and to furnish this list and certain other information to the IRS upon written request. Prospective purchasers are
urged to consult their tax advisors regarding the application of these rules to the acquisition, holding or
disposition of Notes.

Prospective purchasers of Notes are advised to consult their own tax advisors as to the consequences
of a purchase, ownership and disposition of Notes, including, without limitation: (i) the applicability and
effect of any state, local or non-U.S. tax laws to which they may be subject and of any legislative or
administrative changes in law; (ii) the U.S. federal income tax consequences of the Republic withholding of
any foreign withholding taxes; and (iii) the availability of a credit or deduction of any foreign withholding
taxes.

270
 SUBSCRIPTION AND SALE

Summary of Program Agreement

Subject to the terms and on the conditions contained in a program agreement dated January 28, 2009
amended and as supplemented from time to time (the Program Agreement) between the Republic, the Dealers
and the Arrangers, the Notes may be offered on a continuous basis by the Republic to the Dealers. The Notes
may be resold at prevailing market prices, or at prices related thereto, at the time of such resale, as determined by
the relevant Dealer(s). The Notes may also be sold by the Republic through the Dealers, acting as agents of the
Republic. The Program Agreement also provides for Notes to be issued in syndicated Tranches that are jointly
and severally or severally underwritten by two or more Dealers.

The Republic will pay the relevant Dealer a commission as agreed between them in respect of Notes
subscribed by it. The Republic has agreed to reimburse each of the Arrangers for certain of its expenses incurred
in connection with the establishment of the Program and the Dealers for certain of their activities in connection
with the Program.

The Republic has agreed to indemnify the Dealers against certain liabilities in connection with the offer and
sale of the Notes including liabilities under the Securities Act. The Program Agreement entitles the Dealers to
terminate any agreement that they make to subscribe Notes in certain circumstances prior to payment for such
Notes being made to the Republic.

Other Relationships
The Dealers and the Arrangers and certain of their affiliates may from time to time engage in transactions
with and perform services for the Republic in the ordinary course of their business.

The Dealers, the Arrangers and their respective affiliates are full service financial institutions engaged in
various activities which may include securities trading, commercial and investment banking, financial advice,
investment management, principal investment, hedging, financing and brokerage activities. Each of the Dealers
and the Arrangers may have engaged in, and may in the future engage in, investment banking and other
commercial dealings in the ordinary course of business with the Republic from time to time. In the ordinary
course of their various business activities, the Dealers, the Arrangers and their respective affiliates may make or
hold (on their own account, on behalf of clients or in their capacity of investment advisers) a broad array of
investments and actively trade debt and equity securities (or related derivative securities) and financial
instruments (including bank loans) for their own account and for the accounts of their customers and may at any
time hold long and short positions in such securities and instruments and enter into other transactions, including
credit derivatives (such as asset swaps, repackaging and credit default swaps) in relation thereto. Such
transactions, investments and securities activities may involve securities and instruments of the Republic or its
subsidiaries, jointly controlled entities or associated entities, including Notes issued under the Program, may be
entered into at the same time or proximate to offers and sales of Notes or at other times in the secondary market
and be carried out with counterparties that are also purchasers, holders or sellers of Notes. The Dealers and the
Arrangers or certain of their respective affiliates may purchase Notes and be allocated Notes for asset
management and/or proprietary purposes and not with a view to distribution.

Selling Restrictions
The Notes have not been and will not be registered under the laws of any jurisdiction, nor has any other
action been taken, nor will any action be taken, by the Republic, the Dealers or any other person that would
permit a public offering of the Notes or the possession, circulation or distribution of this Offering Circular or any
supplement hereto or thereto, or any other offering material relating to the Republic or the Notes, in any country
or jurisdiction where action for any such purpose may be required. The offer and sale of Notes, and the delivery
of this Offering Circular, are restricted by law in certain jurisdictions and Notes may not be offered or sold, and
this Offering Circular may not be distributed, in any jurisdiction under circumstances where such offer, sale or
distribution would be prohibited or restricted by law.

If a jurisdiction requires that the offering be made by a licensed broker or dealer and the relevant Dealers or
any affiliate of the relevant Dealers are licensed brokers or dealers in that jurisdiction, the offering shall be
deemed to be made by such Dealers or their affiliates on behalf of the Republic in such jurisdiction.

271
 Without limiting the foregoing, prospective purchasers of Notes should be aware of the following
restrictions:

United States of America

The Notes have not been and will not be registered under the Securities Act and, subject to certain
exceptions, may not be offered or sold within the United States. Each Dealer has agreed, and each further Dealer
appointed under the Program will be required to agree, that it will not offer or sell any Notes within the
United States, except as permitted by the Program Agreement.

Bearer Notes are subject to U.S. tax law requirements and may not be offered, sold or delivered within the
United States or its possessions or to a United States person, except in certain transactions permitted by U.S. tax
regulations. Terms used in this paragraph have the meanings given to them by the U.S. Internal Revenue Code
and regulations thereunder.

The Notes are being offered and sold outside the United States in reliance on Regulation S. The Program
Agreement provides that the Dealers may directly or through their respective U.S. broker-dealer affiliates arrange
for the offer and resale of Notes within the United States only to qualified institutional buyers in reliance on
Rule 144A.

In addition, until 40 days after the commencement of the offering of any identifiable Tranche of Notes, an
offer or sale of Notes within the United States by any Dealer (whether or not participating in the offering of such
Tranche of Notes) may violate the registration requirements of the Securities Act if such offer or sale is made
otherwise than in accordance with Rule 144A.

This Offering Circular has been prepared by the Issuer for use in connection with the offer and sale of the
Notes outside the United States and for the resale of the Notes in the United States. The Issuer and the Dealers
reserve the right to reject any offer to purchase the Notes, in whole or in part, for any reason. This Offering
Circular does not constitute an offer to any person in the United States, other than any qualified institutional
buyer within the meaning of Rule 144A to whom an offer has been made directly by one of the Dealers or its
U.S. broker-dealer affiliate. Distribution of this Offering Circular by any person outside the United States or by
any qualified institutional buyer in the United States to any person within the United States, other than any
qualified institutional buyer and those persons, if any, retained to advise such persons with respect thereto, is
unauthorized and any disclosure without the prior written consent of the Issuer of any of its contents to any such
person within the United States, other than any qualified institutional buyer and those persons, if any, retained to
advise such persons, is prohibited.

United Kingdom
Each Dealer has represented and agreed that:
(a) in relation to any Notes having a maturity of less than one year (i) it is a person whose ordinary
activities involve it in acquiring, holding, managing or disposing of investments (as principal or agent)
for the purposes of its business and (ii) it has not offered or sold and will not offer or sell any Notes
other than to persons whose ordinary activities involve them in acquiring, holding, managing or
disposing of investments (as principal or as agent) for the purposes of their businesses or who it is
reasonable to expect will acquire, hold, manage or dispose of investments (as principal or agent) for the
purposes of their businesses where the issue of the Notes would otherwise constitute a contravention of
Section 19 of the Financial Services and Markets Act 2000 (the FSMA) by the Issuer;
(b) it has only communicated or caused to be communicated and will only communicate or cause to be
communicated any invitation or inducement to engage in investment activity (within the meaning of
Section 21 of the FSMA) received by it in connection with the issue of any Notes in circumstances in
which Section 21(1) of the FSMA does not apply to the Issuer; and
(c) it has complied and will comply with all applicable provisions of the FSMA with respect to anything
done by it in relation to any Notes in, from or otherwise involving the United Kingdom.

272
Hong Kong
In relation to each Series of Notes to be issued by the Issuer under the Program, each Dealer has represented
and agreed, and each further Dealer appointed under the Program will be required to represent and agree, that:
(a) it has offered or sold and will not offer or sell in Hong Kong, by means of any document, any Notes,
except for Notes which are a structured product as defined in the SFO, other than (i) to professional
investors as defined in the SFO and any rules made under the SFO; or (ii) in other circumstances
which do not result in the document being a prospectus as defined in the Companies Ordinance
(Cap. 32) of Hong Kong (the Companies Ordinance) or which do not constitute an offer to the public
within the meaning of the Companies Ordinance; and
(b) it has not issued or had in its possession for the purposes of issue, and will not issue or have in its
possession for the purposes of issue, whether in Hong Kong or elsewhere, any advertisement, invitation
or document relating to the Notes, which is directed at, or the contents of which are likely to be
accessed or read by, the public of Hong Kong (except if permitted to do so under the securities laws of
Hong Kong) other than with respect to Notes which are or are intended to be disposed of only to
persons outside Hong Kong or only to professional investors as defined in the SFO and any rules
made under the SFO.

Japan
The Notes have not been and will not be registered under the Financial Instruments and Exchange Act of
Japan (Act No. 25 of 1948, as amended; the FIEA) and each Dealer has represented and agreed that it has not
directly or indirectly offered or sold and will not offer or sell any Notes, directly or indirectly, in Japan or to, or
for the benefit of, any resident of Japan (as defined under Item 5, Paragraph 1, Article 6 of the Foreign Exchange
and Foreign Trade Act (Act No. 228 of 1949, as amended)), or to others for re-offering or resale, directly or
indirectly, in Japan or to, or for the benefit of, a resident of Japan, except pursuant to an exemption from the
registration requirements of, and otherwise in compliance with, the FIEA and any other applicable laws,
regulations and ministerial guidelines of Japan.

European Economic Area

In relation to each Member State of the European Economic Area that has implemented the Prospectus
Directive (each such Member State, a Relevant Member State), each Dealer has represented and agreed that
with effect from (and including) the date on which the Prospectus Directive is implemented in that Relevant
Member State (the Relevant Implementation Date) it has not made and will not make an offer of the Notes
which are the subject of the offering contemplated by this Offering Circular as completed by the Pricing
Supplement in relation thereto to the public in that Relevant Member State except that it may, with effect from
and including the Relevant Implementation Date, make an offer of such Notes to the public in that Relevant
Member State:
(a) if the Pricing Supplement in relation to the Notes specifies that an offer of those Notes may be made
other than pursuant to Article 3(2) of the Prospectus Directive in that Relevant Member State (a Non-
exempt Offer), following the date of publication of a prospectus in relation to such Notes which has
been approved by the competent authority in that Relevant Member State or, where appropriate,
approved in another Relevant Member State and notified to the competent authority in that Relevant
Member State, provided that any such prospectus has subsequently been completed by the Pricing
Supplement contemplating such Non-exempt Offer, in accordance with the Prospectus Directive, in the
period beginning and ending on the dates specified in such prospectus or Pricing Supplement, as
applicable, and the issuer has consented in writing to its use for the purpose of that Non-exempt Offer;
(b) at any time to any legal entity which is a qualified investor as defined in the Prospectus Directive;
(c) at any time to fewer than 100 or, if the Relevant Member State has implemented the relevant provision
of the 2010 PD Amending Directive, 150, natural or legal persons (other than qualified investors as
defined in the Prospectus Directive) subject to obtaining the prior consent of the relevant Dealer or
Dealers nominated by the Issuer for any such offer; or
(d) at any time in any other circumstances falling within Article 3(2) of the Prospectus Directive,

provided that no such offer of Notes referred to in (b) to (d) shall require the Issuer or any Dealer to publish
a prospectus pursuant to Article 3 of the Prospectus Directive or supplement a prospectus pursuant to Article 16
of the Prospectus Directive.

273
 For the purposes of this provision, the expression an offer of Notes to the public in relation to any of the
Notes in any Relevant Member State means the communication in any form and by any means of sufficient
information on the terms of the offer and the Notes to be offered so as to enable an investor to decide to purchase
or subscribe the Notes, as the same may be varied in that Member State by any measure implementing the
Prospectus Directive in that Member State and the expression Prospectus Directive means Directive
2003/71/EC (and amendments thereto, including the 2010 PD Amending Directive, to the extent implemented in
the Relevant Member State), and includes any relevant implementing measure in the Relevant Member State and
the expression 2010 PD Amending Directive means Directive 2010/73/EU.

Singapore
This Offering Circular has not been registered as a prospectus with the Monetary Authority of Singapore,
and the Notes will be offered pursuant to exemptions under the Securities and Futures Act, Chapter 289 of
Singapore (the SFA). Accordingly, each Dealer has represented, warranted and agreed that it has not offered or
sold any Notes or caused the Notes to be made the subject of an invitation for subscription or purchase and will
not offer or sell any Notes or cause the Notes to be made the subject of an invitation for subscription or purchase,
and has not circulated or distributed, nor will it circulate or distribute, this Offering Circular or any other
document or material in connection with the offer or sale, or invitation for subscription or purchase, of the Notes,
whether directly or indirectly, to any person in Singapore other than (a) to an institutional investor pursuant to
Section 274 of the SFA, (b) to a relevant person under Section 275(1) of the SFA, or to any person pursuant to
275(1A) of the SFA, and in accordance with the conditions specified in Section 275 of the SFA, or (c) otherwise
pursuant to, and in accordance with the conditions of, any other applicable provision of the SFA.

Where the Notes are subscribed or purchased under Section 275 of the SFA by a relevant person which is:
(a) a corporation (which is not an accredited investor (as defined in Section 4A of the SFA)) the sole
business of which is to hold investments and the entire share capital of which is owned by one or more
individuals, each of whom is an accredited investor; or
(b) a trust (where the trustee is not an accredited investor) whose sole purpose is to hold investments and
each beneficiary of the trust is an individual who is an accredited investor,

securities (as defined in Section 239(1) of the SFA) of that corporation or the beneficiaries rights and
interest (howsoever described) in that trust shall not be transferable for six months after that corporation or that
trust has acquired the Notes under Section 275 of the SFA except:
(i) to an institutional investor, or to a relevant person defined in Section 275(2) of the SFA, (in the case of
a corporation) where the transfer arises from an offer referred to in Section 276(3)(i)(B) of the SFA or
(in the case of a trust) where the transfer arises from an offer referred to in Section 276(4)(i)(B) of the
SFA;
(ii) where no consideration is or will be given for the transfer;
(iii) where the transfer is by operation of law;
(iv) pursuant to Section 276(7) of the SFA; or
(v) as specified in Regulation 32 of the Securities and Futures (Offers of Investment) (Shares and
Debentures) Regulations 2005 of Singapore.

General
Each Dealer has agreed or will agree that it will (to the best of its knowledge and belief) comply with all
applicable securities laws and regulations in force in any jurisdiction in which it purchases, offers, sells or
delivers Notes or possesses or distributes this Offering Circular and will obtain any consent, approval or
permission required by it for the purchase, offer, sale or delivery by it of Notes under the laws and regulations in
force in any jurisdiction to which it is subject or in which it makes such purchases, offers, sales or deliveries and
neither the Republic nor any other Dealer shall have any responsibility therefor.

Neither the Republic nor any of the Dealers represents that Notes may at any time lawfully be sold in
compliance with any applicable registration or other requirements in any jurisdiction, or pursuant to any
exemption available thereunder, or assumes any responsibility for facilitating such sale.

274
 With regard to each Tranche, the relevant Dealer(s) will be required to comply with such other additional
restrictions as the Republic and the relevant Dealer(s) shall agree and as shall be set forth in the applicable
Pricing Supplement.

Purchasers of Notes sold by the Dealers may be required to pay stamp taxes and other charges in accordance
with the laws and practices of the country of purchase in addition to the offering price and accrued interest, if
any.

Each Series or Tranche of Notes is a new issue of securities with no established trading market. Any one or
more of the Dealers may make a market in the Notes, but are not obliged to do so and may discontinue any
market-marking, if commenced, at any time without notice. No assurance can be given as to the liquidity of the
trading markets for the Notes.

Stabilization
In connection with the Issue of Notes in any Series or Tranche under the Program, the Dealer or Dealers (if
any) named as the Stabilizing Manager(s) (or persons acting on behalf of any Stabilizing Manager(s)) in the
applicable Pricing Supplement may over-allot Notes or effect transactions with a view to supporting the market
price of the Notes in such a Series at a level higher than that which might otherwise prevail. However, there is no
assurance that the Stabilizing Manager (or persons acting on behalf of a Stabilizing Manager) will undertake
stabilization action. Any stabilization will be conducted in accordance with all applicable laws and regulations.

275
 GENERAL INFORMATION

Contact Information
The Republic can be contacted through the Ministry of Finance of the Republic of Indonesia, Jl. Lapangan
Banteng Timur No. 2-4, Jakarta 10710.

Listing of Notes on the SGX-ST

Application will be made to the SGX-ST for permission to deal in and quotation of any Notes that may be
issued pursuant to the Program and which are agreed at or prior to the time of issue thereof to be so listed on the
SGX-ST. However, Notes may be issued under the Program that will not be listed on the SGX-ST or any other
stock exchange, and the Pricing Supplement applicable to each Series or Tranche of Notes will specify whether
or not the Notes will be listed on the SGX-ST or any other stock exchange.

Authorizations
The establishment of the Program was duly authorized pursuant to Indonesias Law No. 24 of 2002, dated
October 22, 2002, regarding Government Debt Securities. Any issuance of Notes under the Program is subject to,
and conditional upon, (i) the existence or adoption of a law by the Indonesian Assembly authorizing the issuance
of such Notes (or the underlying borrowing) and (ii) obtaining any other necessary consents, approvals and
authorizations in connection with the issuance of any such Notes.

Documents on Display
So long as Notes are capable of being issued under the Program, copies of the following documents will,
when published, be available and can be obtained from the specified office of the Trustee for the time being in
New York:
(a) the Program Agreement, the Indenture and the Procedures Memorandum;
(b) a copy of this Offering Circular;
(c) any future offering circulars, offering memoranda, prospectuses, information memoranda and
supplements, including the Pricing Supplement (except that a Pricing Supplement relating to unlisted
Notes will only be available for inspection by a Holder of such Note and such Holder must produce
evidence satisfactory to the Trustee as to the identity of such Holder) to this Offering Circular and any
other documents incorporated herein or therein by reference; and
(d) in the case of each issue of Notes subscribed pursuant to a subscription agreement, such subscription
agreement (or equivalent document).

In addition, a copy of the documents set out in (b) and (c) above can be obtained free of charge from the
specified office of the relevant Paying Agent where so required by the rules of the relevant stock exchange on
which any Series or Tranche of Notes is to be listed.

This Offering Circular and Pricing Supplement for Notes listed on the SGX-ST will be published on the
website of the SGX-ST, being www.sgx.com.

Clearing Systems
In the case of Notes of any Series for which the clearing system is specified in the applicable Pricing
Supplement as Euroclear and Clearstream, the appropriate common code and ISIN for such Tranche of Notes
allocated by Euroclear and Clearstream, upon acceptance into their respective clearing systems, will be specified
in the applicable Pricing Supplement. In the case of Notes of any Series for which the clearing system is
specified in the applicable Pricing Supplement as DTC, the Republic will make an application for such Tranche
of Notes to be accepted for trading in bookentry form by DTC. The CUSIP and/or CINS and/or Common Code
and/or the ISIN for each Series of Notes will be specified in the applicable Pricing Supplement. If the Notes are
to clear through an additional or alternative clearing system, the appropriate information will be specified in the
applicable Pricing Supplement.

276
Litigation
The Republic is not nor has been involved in any governmental, legal or arbitration proceedings (including
any proceedings which are pending or threatened of which the Republic is aware) which may have, or have had
in the 12 months preceding the date of this document, significant effects on the Republics financial position.

Significant Change
Except as disclosed in this Offering Circular, there has been no significant adverse change in the
information set out in this Offering Circular under Republic of Indonesia since the applicable dates of such
information. There have been no recent events relevant to the evaluation of the Republics solvency.

277
 ISSUER
Republic of Indonesia
Ministry of Finance of the Republic of Indonesia
Jl. Lapangan Banteng Timur No. 2-4
Jakarta 10710, Indonesia
ARRANGERS
Citigroup Global The Hongkong and Shanghai Banking Standard Chartered Bank
Markets Inc. Corporation Limited Marina Bay Financial Centre (Tower 1)
388 Greenwich Street, Level 17, 8 Marina Boulevard,
New York, NY10013 HSBC Main Building Level 20
United States of America 1 Queens Road Central, Singapore 018981
Hong Kong
DEALERS
Citigroup Global Deutsche Bank AG, Goldman Sachs The Hongkong and
Markets Inc. Singapore Branch (Singapore) Pte. Shanghai Banking
388 Greenwich Street One Raffles Quay 1 Raffles Link Corporation Limited
New York, NY 10013 #17-00 South Tower #07-01 South Lobby Level 17,
United States of America Singapore 048583 Singapore 039393 HSBC Main Building
1 Queens Road Central,
Hong Kong
J.P. Morgan Merrill Lynch Socit Gnrale Standard Chartered Bank
Securities plc (Singapore) Pte. Ltd. 29 boulevard Haussmann Marina Bay
25 Bank Street Canary Wharf 50 Collyer Quay, 75009 Paris Financial Centre (Tower 1)
London E14 5JP #14-01 OUE France 8 Marina Boulevard,
United Kingdom Bayfront Level 20
Singapore 049321 Singapore 018981
TRUSTEE
The Bank of New York Mellon
101 Barclay Street, 21st Floor West
New York, New York 10286
United States of America
PAYING AGENT
The Bank of New York Mellon The Bank of New York Mellon, The Bank of New York Mellon,
101 Barclay Street, 21st Floor West London Branch Singapore Branch
New York, New York 10286 One Canada Square One Temasek Avenue
United States of America London E14 5AL #03-01 Millenia Tower
United Kingdom Singapore 039192
REGISTRAR AND TRANSFER AGENT
The Bank of New York Mellon The Bank of New York Mellon (Luxembourg) S.A.
101 Barclay Street, 21st Floor West Vertigo Building, Polaris
New York, New York 10286 2-4 rue Eugne Ruppert
United States of America L-2453, Luxembourg
LEGAL ADVISORS TO THE REPUBLIC
as to U.S. law as to Indonesian law
Allen & Overy LLP MMIK Law Office
50 Collyer Quay OFFICE 8, 15th Floor,
#09-01 OUE Bayfront Suite H, SCBD Lot 28
Singapore 049321 Jalan Senopati Raya No.8B
Jakarta 12190 - Indonesia
LEGAL ADVISORS TO THE ARRANGERS AND THE DEALERS
as to U.S. law as to Indonesian law
Linklaters Thamrin & Rachman Law Firm
10th Floor, Alexandra House Graha CIMB Niaga, 7th Floor,
18 Chater Road Central Jl. Jend Sudirman Kav. 58
Hong Kong Jakarta 12190 - Indonesia
SGX-ST LISTING AGENT
Allen & Gledhill LLP
One Marina Boulevard #28-00
Singapore 018989
 IMPORTANT NOTICE

THIS OFFERING IS AVAILABLE ONLY TO INVESTORS WHO ARE EITHER (1) QIBS UNDER
RULE 144A OR (2) ADDRESSEES OUTSIDE OF THE U.S.

IMPORTANT: You must read the following before continuing. The following applies to the Offering
Circular (the Offering Circular) following this page, and you are therefore advised to read this carefully before
reading, accessing or making any other use of the Offering Circular. In accessing the Offering Circular, you
agree to be bound by the following terms and conditions, including any modifications to them, any time you
receive any information from us as a result of such access.

NOTHING IN THIS ELECTRONIC TRANSMISSION CONSTITUTES AN OFFER OF SECURITIES

FOR SALE OR SOLICITATION IN ANY JURISDICTION WHERE IT IS UNLAWFUL TO DO SO. THE
SECURITIES HAVE NOT BEEN, AND WILL NOT BE, REGISTERED UNDER THE U.S. SECURITIES
ACT OF 1933, AS AMENDED (THE SECURITIES ACT), OR THE SECURITIES LAWS OF ANY STATE
OF THE U.S. OR OTHER JURISDICTION AND ANY BEARER SECURITIES ARE SUBJECT TO U.S. TAX
LAW REQUIREMENTS. THE SECURITIES MAY NOT BE OFFERED OR SOLD WITHIN THE U.S.
EXCEPT PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND APPLICABLE OR LOCAL
SECURITIES LAWS. IN THE CASE OF BEARER NOTES, THE SECURITIES MAY NOT BE DELIVERED,
OFFERED OR SOLD TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS (AS DEFINED IN
THE U.S. INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE INTERNAL REVENUE CODE)).

THE FOLLOWING OFFERING CIRCULAR MAY NOT BE FORWARDED OR DISTRIBUTED TO

ANY OTHER PERSON AND MAY NOT BE REPRODUCED IN ANY MANNER WHATSOEVER. ANY
FORWARDING, DISTRIBUTION OR REPRODUCTION OF THIS OFFERING CIRCULAR IN WHOLE OR
IN PART IS UNAUTHORIZED. FAILURE TO COMPLY WITH THIS DIRECTIVE MAY RESULT IN A
VIOLATION OF THE SECURITIES ACT OR THE APPLICABLE LAWS OF OTHER JURISDICTIONS.
ANY INVESTMENT DECISION SHOULD BE MADE ON THE BASIS OF THE FINAL TERMS AND
CONDITIONS OF THE SECURITIES AND THE INFORMATION CONTAINED IN THIS OFFERING
CIRCULAR. IF YOU HAVE GAINED ACCESS TO THIS TRANSMISSION CONTRARY TO ANY OF THE
FOREGOING RESTRICTIONS, YOU ARE NOT AUTHORIZED AND WILL NOT BE ABLE TO
PURCHASE ANY OF THE SECURITIES DESCRIBED THEREIN.

Confirmation of your Representation: In order to be eligible to view this Offering Circular or make an
investment decision with respect to the securities, investors must be either (1) qualified institutional buyers
(QIBs) (within the meaning of Rule 144A under the Securities Act) or (2) outside the United States and (in the
case of bearer notes) non-U.S. persons (within the meaning of the Internal Revenue Code). This Offering
Circular is being sent at your request and by accepting the e-mail and accessing this Offering Circular, you shall
be deemed to have represented to us that (1) you and any customers you represent are either (a) QIBs or
(b) outside the U.S. and that the electronic mail address that you gave us and to which this e-mail has been
delivered is not located in the U.S. and (in the case of bearer notes) not a U.S. person (2) that you consent to
delivery of such Offering Circular by electronic transmission.

You are reminded that this Offering Circular has been delivered to you on the basis that you are a person
into whose possession this Offering Circular may be lawfully delivered in accordance with the laws of the
jurisdiction in which you are located. If this is not the case, you must return the Offering Circular to us
immediately. You may not, nor are you authorized to, deliver or disclose the contents of this Offering Circular to
any other person.

The materials relating to the offering do not constitute, and may not be used in connection with, an offer or
solicitation in any place where offers or solicitations are not permitted by law. If a jurisdiction requires that the
offering be made by a licensed broker or dealer and the underwriters or any affiliate of the underwriters is a
licensed broker or dealer in that jurisdiction, the offering shall be deemed to be made by the underwriters or such
affiliate on behalf of the Issuer in such jurisdiction.

This Offering Circular has been sent to you in an electronic form. You are reminded that documents
transmitted via this medium may be altered or changed during the process of electronic transmission and
consequently none of the Republic of Indonesia, Citigroup Global Markets Inc., The Hongkong and Shanghai
Banking Corporation Limited, Standard Chartered Bank, the Dealers (as defined in the Offering Circular), nor
any person who controls any of them nor any director, officer, official, employee nor agent of any of them or
affiliate of any such person accepts any liability or responsibility whatsoever in respect of any difference between
the Offering Circular distributed to you in electronic format and the hard copy version available to you on request
from Citigroup Global Markets Inc., The Hongkong and Shanghai Banking Corporation Limited or Standard
Chartered Bank.

You are responsible for protecting against viruses and other destructive items. Your use of this e-mail is at
your own risk and it is your responsibility to take precautions to ensure that it is free from viruses and other items
of a destructive nature.